10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011, OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number 000-51462

CHELSEA THERAPEUTICS INTERNATIONAL, LTD.

(Exact name of Registrant as specified in its charter)

Delaware	20-3174202
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3530 Toringdon Way, Suite 200, Charlotte, North Carolina 28277

(Address of principal executive offices, including zip code)

(704) 341-1516

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.0001 Par Value	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes  ¨    No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer     ¨	Accelerated filer     x
Non-accelerated filer     ¨	Smaller reporting company   ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s common stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s common stock on June 30, 2011 ($5.10 per share) was approximately $217,600,000. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

At March 2, 2012, 67,040,569 shares of the Registrant’s common stock, $.0001 par value per share, were outstanding.

Documents Incorporated By Reference

Portions of the Registrant’s definitive Proxy Statement to be filed for its 2012 Annual Meeting of Stockholders currently scheduled to be held June 12, 2012 are incorporated by reference into Part III of this report.

ANNUAL REPORT ON FORM 10-K

Table of Contents

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		22
Item 1B.	Unresolved Staff Comments		37
Item 2.	Properties		37
Item 3.	Legal Proceedings		37
Item 4.	Mine Safety Disclosures		37
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		38
Item 6.	Selected Consolidated Financial Data		39
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		55
Item 8.	Financial Statements and Supplementary Data		56
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
Item 9A.	Controls and Procedures		56
Item 9B.	Other Information		59
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		60
Item 11.	Executive Compensation		60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		72
Item 13.	Certain Relationships and Related Transactions, and Director Independence		72
Item 14.	Principal Accounting Fees and Services		72
PART IV
Item 15.	Exhibits and Financial Statement Schedules		73
SIGNATURES			77

PART I

Except for the historical information contained herein, the matters set forth in this Report include forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties are detailed throughout the report and will be further discussed from time to time in our periodic reports filed with the Securities and Exchange Commission. The forward-looking statements included in this Report speak only as of the date hereof.

ITEM 1. BUSINESS.

Overview

We are a development-stage pharmaceutical company that seeks to acquire, develop and commercialize innovative products for the treatment of a variety of human diseases. Our strategy is to develop technologies that address important unmet medical needs or offer improved, cost-effective alternatives to current methods of treatment.

We are currently developing droxidopa, a novel therapeutic agent for the treatment of symptomatic neurogenic orthostatic hypotension, or NOH, in patients with primary autonomic failure (Parkinson’s Disease, or PD, multiple systems atrophy, or MSA, and pure autonomic failure, or PAF), dopamine ß-hydroxylase, or DBH, deficiency and non-diabetic autonomic neuropathy. We are also evaluating the potential therapeutic applications of droxidopa in reducing the frequency of falls in patients with NOH associated with PD, as well as other potentially norepinephrine related conditions and diseases including intradialytic hypotension, or IDH, fibromyalgia and adult attention deficit hyperactivity disorder, or ADHD. In addition, we are developing a portfolio of metabolically inert antifolates for the treatment of rheumatoid arthritis and that are expected to be suitable for the treatment of multiple other autoimmune disorders, including psoriasis, Crohn’s disease, uveitis, ankylosing spondylitis, inflammatory bowel disease, cancer and other immunological disorders.

Product Pipeline Highlights

Northera^TM (droxidopa), our most advanced investigational product candidate, is an orally active synthetic precursor of norepinephrine. Northera is being developed for the treatment of symptomatic NOH in primary autonomic failure (PD, MSA and PAF), DBH deficiency and non-diabetic autonomic neuropathy. Northera is also being studied in a Phase III trial evaluating its effect on reducing falls in patients with NOH associated with PD. In 2007, the U.S. Food and Drug Administration, or FDA, granted orphan drug status to Northera for the treatment of symptomatic NOH and the European Medicines Agency, or EMA, granted orphan medicinal product designation for the treatment of orthostatic hypotension in patients with PAF and MSA.

In Japan, droxidopa has been approved since 1989 and is marketed by Dainippon Sumitomo Pharma Co., Ltd., or DSP, for the treatment of frozen gait and dizziness on standing in PD, orthostatic hypotension, syncope and dizziness on standing in MSA (Shy-Drager Syndrome) and familial amyloid polyneuropathy and symptoms of orthostatic hypotension in hemodialytic patients.

In November 2011, the FDA accepted for filing our New Drug Application, or NDA, seeking approval to market Northera in patients with primary autonomic failure, DBH deficiency and non-diabetic autonomic neuropathy that we submitted in September 2011. In addition, the FDA granted our request for a priority review of the NDA and, under the Prescription Drug User Fee Act VI, or PDUFA, the FDA’s goal is to review and act on the NDA by March 28, 2012.

On February 23, 2012, at the request of the FDA, a meeting of the FDA’s Cardiovascular and Renal Drugs Advisory Committee, or CRDAC, was held, providing the FDA with an independent review and expert advice

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related to our NDA filing for Northera. In a 7 to 4 vote, with one abstention and one non-vote, the CRDAC recommended that the FDA approve our NDA to market Northera in the United States. While the FDA is not bound by the recommendations of its advisory committees, the recommendation for approval from the CRDAC will be considered by the FDA in its review of our NDA.

In addition to our clinical and registration programs for Northera, we continue to explore additional therapeutic applications for droxidopa, both as a monotherapy and in combination with dopa decarboxylase inhibitors, such as carbidopa, in both company-sponsored and investigator-led Phase II trials.

We are also developing a portfolio of molecules for the treatment of various autoimmune/inflammatory diseases. The most advanced platform is a portfolio of metabolically inert antifolate molecules engineered to have potent anti-inflammatory and anti-tumor activity to treat a range of immunological disorders, including two clinical stage product candidates: CH-1504 and CH-4051. Both are orally available molecules with anti-inflammatory, autoimmune and anti-tumor properties that potently inhibit several key enzymes required for cell proliferation. Preclinical and clinical data to date suggests superior safety and tolerability, as well as increased potency versus methotrexate, or MTX, currently the leading antifolate treatment and standard of care for a broad range of abnormal cell proliferation diseases. Diseases that may potentially be treated with these compounds include rheumatoid arthritis, psoriasis, Crohn’s disease, ankylosing spondylitis, uveitis, psoriatic arthritis and several different kinds of cancer.

Complementing our antifolate program is a second platform consisting of a portfolio of dihydroorotate dehydrogenase, or DHODH, inhibiting compounds known as the I-3D portfolio. Although we are currently performing no work on this portfolio, preclinical animal data has shown potential applications in autoimmune diseases and transplantation.

We also remain active in evaluating potential in-licensing and acquisition candidates to identify and acquire additional drug candidates as available funding might allow.

To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any revenues from our drug candidates.

Our Strategy

Our mission is to create long-term stockholder value by acquiring, developing and commercializing innovative products for the treatment of a variety of human diseases that address important unmet medical needs or offer improved, cost-effective alternatives to current methods of treatment. Since inception in 2002, we have focused primarily on organizing and staffing our company, negotiating in-licensing agreements with our partners, acquiring, developing and securing our proprietary technology, participating in regulatory discussions with the FDA, the EMA and other regulatory agencies, undertaking preclinical and clinical trials of our product candidates, raising capital, and, more recently, preparing for the planned commercial launch in the United States of Northera in anticipation of regulatory approval. We are a development stage company and have generated no revenues since inception. We do not anticipate generating any product revenue until and unless we successfully obtain approval from the FDA or equivalent foreign regulatory bodies to begin selling Northera or any of our other pharmaceutical candidates although we could potentially generate revenue prior to any marketing approval by entering into strategic agreements including out-licensing, co-development or co-promotion of our drug candidates. Currently, operating expenses are being funded with proceeds from equity financings and, to a much lesser extent, through the issuance of our common stock pursuant to option or warrant exercises.

We also continue to discuss our antifolate program with potential partners to gauge their interest in licensing this library of compounds. We believe a partner, with access to more significant resources, may be able to manage Phase III trials and global commercialization more effectively and with less risk than we could and, accordingly, our current strategy is to pursue such a partnership. Similarly, as we are currently not planning to

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establish commercial operations outside of the United States, we continue to discuss potential licensing arrangements for Northera in Europe and other markets outside the United States. In the course of these discussions, the program has generated interest among potential partners and we continue to evaluate the licensing and/or partnering potential for Northera in North America. Any such partnership would aim to provide significant value to us and our stockholders, while maximizing the opportunities for Northera in global markets. We also continue to pursue and evaluate potential out-licensing arrangements for our I-3D portfolio of DHODH inhibiting compounds.

We have retained a management team with leading core competencies and expertise in numerous fields, including manufacturing, drug development, including preclinical and clinical, regulatory, sales, marketing, finance and business development. Our management and advisors are comprised of experienced pharmaceutical and biotechnology industry veterans and respected experts. We are led by our Chief Executive Officer, Dr. Simon Pedder, formerly Vice President, Pharmaceutical Business, Oncology at Hoffmann-La Roche Inc., who has over 20 years of senior pharmaceutical management experience, including drug development and business experience. During his time at Roche, Dr. Pedder was responsible for a number of global development programs, successful registrations and product launches.

Plan of Operation

Our plan of operation is to continue implementing our business strategy, especially the planned commercialization of Northera in the United States, and clinical development of our other current drug candidates including Northera, droxidopa for other indications and our portfolio of antifolates. As we have in the past, we plan to continue exploring the feasibility of other licensed or newly developed compounds and to expand our drug candidate portfolio by acquiring additional drug technologies for development as our resources permit. We expect our principal expenditures during 2012 to include:

• operating expenses, including general and administrative and business development expenses;

• marketing, sales and other pre-launch and post-launch commercialization expenses for Northera;

• costs for the purchase of inventory for commercial resale; and

• product development expenses, including the costs incurred with respect to our clinical trials for droxidopa and our antifolates.

As part of meeting our operating needs, we plan to hire approximately 85 sales representatives, contingent on FDA approval for Northera, and may hire additional manufacturing, scientific, regulatory, sales, marketing, finance and operations staff. In addition, we intend to continue using clinical research organizations and third parties to perform our clinical studies and manufacturing.

Corporate History

Our operating company was incorporated in Delaware in April 2002 under the name Aspen Therapeutics, Inc., and changed its name to Chelsea Therapeutics, Inc. in July 2004. On February 11, 2005, Chelsea Therapeutics, Inc. completed a merger with Ivory Capital Corporation, a publicly traded Colorado corporation formed in May 1988. At the time of the transaction, Ivory Capital had only nominal assets and no operating activities. In connection with this merger transaction, a wholly owned subsidiary of Ivory Capital Corporation merged with and into Chelsea Therapeutics, Inc., with Chelsea Therapeutics, Inc. remaining as the surviving corporation and a wholly owned subsidiary of Ivory Capital Corporation. In connection with the merger, the former stockholders of Chelsea Therapeutics, Inc. received 96.75% percent of our outstanding equity on a fully diluted basis. Pursuant to the terms of the merger, the sole officer and director of Ivory Capital Corporation prior to the merger was replaced with the officers and directors of Chelsea Therapeutics, Inc.

On June 17, 2005, Ivory Capital Corporation formed a wholly owned subsidiary in Delaware named Chelsea Therapeutics International, Ltd. for the purposes of reincorporating in Delaware. On July 28, 2005, Ivory Capital

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Corporation merged with Chelsea Therapeutics International, Ltd., with Chelsea Therapeutics International, Ltd. as the surviving corporation. As a result, Chelsea Therapeutics International, Ltd. is the public reporting company and is the 100% owner of Chelsea Therapeutics, Inc., its operating subsidiary.

Except where the context provides otherwise, references to “we,” “us,” “our” and similar terms mean Chelsea Therapeutics International, Ltd., Ivory Capital Corporation and Chelsea Therapeutics, Inc. When we refer to business and financial information relating to periods prior to December 31, 2004, we are referring to the business and financial information of Chelsea Therapeutics, Inc. unless the context requires otherwise. When we refer to business and financial information for periods between January 1, 2005 and July 28, 2005, we are referring to the business and financial information of Ivory Capital Corporation.

Products Under Development

DROXIDOPA

Product Overview

Droxidopa, a synthetic amino acid, is converted by the body into norepinephrine and, as a prodrug of norepinephrine, provides replacement therapy for norepinephrine deficiency. Norepinephrine is both a hormone and a neurotransmitter. As a hormone, secreted by the adrenal gland, it works alongside epinephrine/adrenaline to give the body sudden energy in times of stress, known as the “fight or flight” response. As a neurotransmitter, it passes nerve impulses from one neuron to the next. While norepinephrine, as a catecholamine does not penetrate the blood-brain barrier, droxidopa, as a neutral amino acid, is able to do so thus providing both a peripheral and central effect on circulating norepinephrine levels. By producing and replenishing depleted norepinephrine via endogenous enzymatic pathways, droxidopa is believed to allow for the re-uptake of norepinephrine into peripheral and central nervous system neurons.

Droxidopa is currently approved and marketed by Dainippon Sumitomo Pharma Co., Ltd., or DSP, in Japan for the treatment of frozen gait and dizziness on standing in PD, orthostatic hypotension, syncope and dizziness on standing in MSA (Shy-Drager Syndrome) and familial amyloid polyneuropathy and symptoms of orthostatic hypotension in hemodialytic patients. Droxidopa received initial Japanese marketing approval in 1989 and has historically generated annual revenues of up to approximately $50 million in Japan. In addition to the indications studied by DSP and subsequently approved in Japan, diseases that may potentially be treated with droxidopa include fibromyalgia, ADHD and other indications in which norepinephrine deficiencies are believed to play a role.

Clinical Development

We are currently focusing on the clinical development of droxidopa in symptomatic NOH, the reduction of falls related to NOH in PD, the treatment of fibromyalgia and IDH. In order to maximize the potential therapeutic applications of droxidopa while conserving capital, we have provided support to several investigator-led studies of droxidopa, including a study completed in 2011 in ADHD, and plan to continue exploring opportunities to support additional, investigator-led studies of droxidopa in indications for which we believe a strong clinical rationale exists.

Neurogenic Orthostatic Hypotension

Given the extensive body of clinical data generated by DSP and exclusivity available to us under terms of our licensing agreement, we plan to seek initial marketing approval of droxidopa, under the brand name Northera™, in the United States and European Union for the treatment of symptomatic NOH in patients with primary autonomic failure, an indication for which the drug has been approved in Japan since 1989.

Orthostatic hypotension is a sustained decrease in blood pressure when a person assumes a standing position and is characterized by lightheadedness, dizziness, blurred vision and syncope. There are multiple known causes

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for orthostatic hypotension including those that are considered cardiovascular, endocrine and neurological (or neurogenic) in nature. Orthostatic hypotension that is neurogenic in nature results from a deficient release and/or synthesis of norepinephrine, a neurotransmitter used by autonomic nerves to send signals to the blood vessels and the heart. This condition is commonly associated with PD, PAF and MSA, and has a significant impact on sufferers’ quality of life, with some patients unable to stand unaided for more than a few minutes a day.

In January 2007, the FDA granted orphan drug status for Northera for the treatment of symptomatic NOH in patients with primary autonomic failure, dopamine-ß-hydroxylase deficiency and non-diabetic autonomic neuropathy. In the United States, orphan drug status provides seven years of marketing exclusivity and may impact FDA requirements for clinical trials, potentially reducing the time and expense required for such trials. The FDA has also granted Fast Track designation to Northera for symptomatic NOH. Fast Track designation is designed to facilitate the review of products that address serious or potentially life-threatening conditions for which there is an unmet medical need.

In August 2007, the EMA granted two orphan medicinal product designations for Northera for the treatment of orthostatic hypotension in patients with PAF and MSA, respectively. Although we can expect 10 years of data exclusivity for droxidopa upon approval in Europe as a new chemical entity, orphan drug status could impact requirements for clinical trials supporting a filing for approval in Europe, potentially impacting the time and costs associated with our development of Northera for this market.

We have previously completed two Phase III efficacy 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). Northera showed similar improvements (p<0.05) in OHQ composite scores 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 have supplied top-line results from a QTc study. 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.

In September 2010, we announced that a preliminary analysis of Study 301 showed 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. The 167 patients randomized into this double-blind, placebo-controlled study were evaluated for symptomatic and functional improvements using the OHQ composite, which 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 composite, 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 statistically significant improvement in standing SBP (p<0.001) relative to placebo.

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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.

The primary efficacy endpoint for Study 302 was defined as the relative symptomatic change, as measured by the mean score of Item 1 (dizziness or lightheadedness) of the Orthostatic Hypotension Symptom Assessment, or OHSA, 14 days following randomization either to continued therapy with droxidopa or to placebo. In September 2009, we announced preliminary data from Study 302. 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 study’s primary efficacy endpoint. While the study did not meet its primary endpoint, additional analysis confirmed statistically significant symptomatic benefit across multiple, clinically relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data, including a significant improvement in the OHQ composite (p<0.05) over placebo. Data from the trial also supported the safety and tolerability of Northera.

In September of 2011, we submitted our NDA to the FDA seeking approval to market Northera for the treatment of symptomatic NOH in patients with primary autonomic failure, dopamine beta hydroxylase deficiency and non-diabetic autonomic neuropathy, based on the results from our Northera registration program, including data from our two completed Phase III efficacy studies in NOH, two long-term open-label extension studies, a dedicated thorough QTc study, and a 24-hour ambulatory blood pressure monitoring safety study, and supportive data obtained from DSP. In November of 2011, the FDA accepted our filing for review, granting our request for a Priority Review, and, under PDUFA, the FDA’s goal is to review and act on the NDA by March 28, 2012. The FDA grants priority review to drugs offering major advances in treatment, or providing a treatment where no adequate therapy exists. In addition, the FDA scheduled a review of the Northera NDA at a February 2012 meeting of its CRDAC. Advisory committees provide independent, expert advice to the agency and are often held as part of the review process for first-in-class drugs. On February 23, 2012, the FDA’s CRDAC voted 7 to 4 to recommend approval of Northera for the treatment of symptomatic NOH in patients with primary autonomic failure (PD, MSA and PAF), DBH deficiency and non-diabetic autonomic neuropathy. While the FDA is not bound by the recommendations of its advisory committees, the recommendation of the CRDAC will be considered by the FDA in its review of our NDA in advance of its target action date of March 28, 2012.

Following an initial discussion in 2006, we have conducted only limited discussions of the specifics of our clinical program for Northera with the EMA and we do not know if our current program will be acceptable for marketing approval in the European Union or if we may be required to conduct additional efficacy trials.

Given the 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 of Northera in PD patients with NOH initiated in 2010. Study 306 was originally intended to support our registration of Northera for the treatment of NOH using the primary endpoint of the relative mean change in OHQ composite between treatment and placebo arms. In February 2011, we announced our plans to modify Study 306 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 a 60% reduction in falls and supportive signs of therapeutic activity associated with Northera in the first 51 patients to complete Study 306. Given the highly significant outcome of Study 301, the FDA agreement that sufficient data exists to support an NDA filing without the results of Study 306 and given the outcome of the interim analysis, we modified Study 306, changing the primary endpoint to the change in patient reported falls from baseline to end of study. We plan to use data from this trial to form the basis for a future, supplemental claim of a reduction in falls associated with NOH in PD.

Having already enrolled 113 patients as of February 2011, we modified and separated Study 306 such that the first 51 patients evaluated in the unblinded interim analysis were considered Part A (Study 306A) and constitute a hypothesis-generating study, and the remaining patients enrolled or to be enrolled in the study will

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become Part B (Study 306B) and serve as a distinct, hypothesis-confirming study. Based on the analysis of data from Study 306A, we repowered the study to demonstrate a 45% reduction in falls associated with NOH in PD and plan to enroll a total of approximately 160 patients in Study 306B. Based on current estimates, we anticipate data from Study 306B will likely be available by the third quarter of 2012. Collectively, we believe the results from Studies 306A and 306B should serve as the basis for a supplemental NDA, or sNDA, intended to expand the future labeling of Northera in the United States to include the reduction of falls in NOH associated with PD.

Intradialytic Hypotension

IDH is another indication for which DSP conducted extensive clinical evaluation. Pivotal clinical studies conducted by DSP have demonstrated the efficacy of droxidopa in the prevention of vertigo, dizziness and weakness associated with hypotension in hemodialysis patients. Subsequently, in 2000, after showing benefit in clinical trials, DSP received expanded marketing approval in Japan for this indication.

Intradialytic hypotension is the most common adverse event during routine hemodialysis. IDH is often defined as a decrease in systolic blood pressure by ³ 20 mm Hg or a decrease in mean arterial pressure by 10 mm Hg. IDH has been reported in 15-25% of all hemodialysis patients, with elderly patients reporting an even higher incidence. Many adverse hemodialysis events, including headaches, lightheadedness, nausea, cramps, and seizures, are associated with IDH. These complications can routinely interrupt dialysis sessions, resulting in insufficient uremia toxin removal and necessitating repetition of the procedure. Interruptions due to IDH increase the costs of both the dialysis treatment sessions and the long-term care of less healthy hemodialysis patients.

In March 2009, we reported results from a double-blind, placebo controlled trial comparing 400mg and 600mg of droxidopa to placebo. Following a two-week run-in period to establish a baseline for all measurements, patients in this three-arm study received a single oral dose of droxidopa or placebo one hour prior to each dialysis treatment over a four-week period. In order to determine useful clinical endpoints for a Phase III program, the trial evaluated the efficacy of droxidopa using multiple clinically relevant measures, including: the change from baseline in average mean arterial blood pressure during dialysis; the change from baseline in average mean nadir (lowest) blood pressure during dialysis; the number of treatment interventions, including early termination, required during dialysis sessions; and the change from baseline in mean postdialytic blood pressure during the final two weeks of the study period. The study recruited 85 patients at 15 sites in the United States. Droxidopa demonstrated a dose dependent, statistically significant benefit across multiple, clinically relevant assessment criteria for IDH. While the study did not achieve an improvement in mean arterial blood pressure during dialysis, the prospective primary endpoint for the study, droxidopa demonstrated a significant benefit in limiting the severity of the drop (nadir) in blood pressure during treatment. The data also showed that droxidopa was well tolerated by patients with the most common treatment-related side effect reported being headache (3%). Results from this study might be used to determine clinical endpoints for a potential future Phase III program that might allow us to file for the first marketing approval of a therapeutic agent for IDH in the United States.

Fibromyalgia

Fibromyalgia is a polysymptomatic syndrome characterized by chronic, widespread musculoskeletal pain, multiple tender points, abnormal pain sensitivity, and is often accompanied by severe fatigue, insomnia and mood symptoms. According to the American College of Rheumatology, fibromyalgia is the second most commonly diagnosed condition in rheumatology clinics in the United States after osteoarthritis and is estimated to affect over six million Americans. While the precise etiology of fibromyalgia remains unknown, current research includes the role of norepinephrine reuptake and availability in the central nervous system. Norepinephrine, a widely used neurotransmitter in the central and peripheral nervous systems, has long been linked to both chronic pain and depression. While norepinephrine, as a catecholamine, does not penetrate the blood-brain barrier, droxidopa, as a neutral amino acid, is able to do so thus providing both a peripheral and central effect on circulating norepinephrine levels. In prior studies conducted by DSP, droxidopa has shown statistically significant dose-dependent analgesia in chronic pain.

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In December 2011, we reported results of a Phase II dose-finding study designed to evaluate the safety and determine the potential therapeutic dose range of droxidopa, alone or in combination with carbidopa, which might be effective for the treatment of fibromyalgia. Topline results of the study indicate a dose response with the highest dose of droxidopa, 600 mg three times daily, or TID, demonstrating a 6.2-point average improvement from a baseline score of 23.00 on the Short Form McGill Questionnaire (SF-MPQ) at the end of the nine-week treatment period, the study’s primary endpoint. This reflects a 3.2 unit improvement over placebo on the SF-MPQ total pain score. Although the study was not designed to demonstrate statistical significance given the limited number of patients per arm, results of the study show a mean change in pain as measured by the visual analog scale (VAS) of -1.64 for patients treated with droxidopa monotherapy compared to a mean change of -0.90 for placebo. Assessment using the Fibromyalgia Index Questionnaire (FIQ) showed patients treated with droxidopa monotherapy demonstrated a mean change from baseline of -9.72 compared to -4.74 reported by patients in the placebo arm. Interestingly, administration of droxidopa as a monotherapy proved more effective than droxidopa/carbidopa combination therapy in this study. The Phase II trial, conducted in the U.K., was a multi-center, randomized, double-blind, placebo-controlled, dose response, factorial parallel group study evaluating 120 patients equally randomized to receive droxidopa monotherapy, carbidopa monotherapy, droxidopa/carbidopa combination therapy or placebo over a 9-week treatment period. Secondary outcomes of the study include Fibromyalgia Index Questionnaire (FIQ), Patient Global Impression of Change (PGI-C), Multidimensional Fatigue Inventory (MFI), and Hamilton Anxiety Depression survey (HAMA).

Additional Potential Indications for Droxidopa

In addition to the indications for which we have established active clinical programs, we believe there are a significant number of other therapeutic indications in which norepinephrine function plays a key role and for which droxidopa may provide clinical benefit. To facilitate research in additional indications and maximize the long-term development potential, we have initiated an extra-mural development program that enables independent investigators to conduct clinical trials in their respective fields of expertise. Specifically, we have been exploring Phase II clinical studies, under investigator-sponsored investigational new drug applications, or INDs, intended to evaluate the safety and efficacy of droxidopa in ADHD, CFS, freezing of gait in PD, Down syndrome and hypotensive patients with spinal cord injury. For studies conducted under investigator-sponsored INDs, we have limited control over the timing for initiating or completing these studies and, therefore, cannot predict with any certainty when data from these programs will be available.

In July 2011, we announced positive top-line results of an investigator-led Phase II clinical study of droxidopa in combination with carbidopa in 20 adults with ADHD indicating that droxidopa dramatically improved patients’ mean score on the adult ADHD Investigator Symptom Rating Scale, or AISRS. The AISRS is a standardized, validated rating scale for assessing symptoms of adult ADHD and for measuring response to treatment. Upon enrollment, patients in the study had a mean AISRS score of 34. After three weeks of open-label droxidopa monotherapy (titration from 200mg-600mg TID), the mean AISRS score decreased by approximately 47% to 19 (p<0.0001). The reduction in AISRS score was maintained with the addition of carbidopa (25mg or 50mg) for another three weeks.

In October 2011, an investigator-led, Phase II study began to evaluate droxidopa for the treatment of orthostatic hypotension resulting from spinal cord injury.

In November 2011, we also announced that an investigator-led, open label Phase II study of droxidopa for the treatment of chronic fatigue syndrome, or CFS, initiated at the Hunter-Hopkins Center in Charlotte, North Carolina was closed prior to completion of the trial as a result of slow patient recruitment and enrollment.

We plan to continue working with key opinion leaders to identify and evaluate additional potential indications for droxidopa and may provide droxidopa for future studies when deemed appropriate and as funding and availability of drug substance permits.

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Droxidopa Competition

Neurogenic Orthostatic Hypotension

Midodrine (ProAmatine^®)

Midodrine is currently the only FDA-approved therapeutic for the treatment of orthostatic hypotension. Midodrine’s product label contains a black box warning for the side effect of supine hypertension, along with the statement that midodrine has not shown benefit to patients’ Activities of Daily Living, or symptomatic/functional benefit. In August 2010, the FDA proposed removing midodrine from the market because required post-approval studies to verify the clinical benefit of the drug have not been satisfactorily completed by Shire plc, the holder of the NDA for ProAmatine™ (midodrine HCL) . In January 2011, the FDA announced the opening of a public docket (FDA-2010-N-0475) to provide a forum to facilitate communication regarding the conduct of clinical trials needed to support continued marketing authorization for midodrine.

In December 2011, Shire reached an agreement with the FDA and in February 2012, the FDA’s Center for Drug Evaluation, or CDER, also agreed to allow Shire to conduct two additional clinical trials to demonstrate the clinical benefit of ProAmatine by the end of 2014. While these trials are ongoing, the proposal to withdraw midodrine from the market has been placed on hold. Should the FDA determine that Shire has failed to adhere to the terms or timeframes specified in this agreement, or the agreed upon trials fail to verify clinical benefit, Shire has agreed to have the FDA withdraw the marketing approval for midodrine and Shire waives the right for a public hearing.

As the only approved compound for orthostatic hypotension in the U.S, midodrine’s removal could facilitate higher sales and/or more rapid acceptance of droxidopa in this indication. However, the FDA has never removed a drug under similar circumstances and we can provide no assurance that they will do so in the case of midodrine.

Other than the increase in blood pressure caused by vasoconstriction, additional midodrine side effects include paresthesia (tingling), piloerection (goosebumps), dysuria (painful urination), and pruritus (itching). Annual sales (branded and generic) in 2011 in the United States totaled approximately $61 million. In addition to Shire’s ProAmatine brand, Mylan Pharmaceuticals, Impax Laboratories (Global Pharmaceuticals), Sandoz, Apotex and Upsher-Smith are generic manufacturers of the compound.

Fludrocortisone (Florinef^®)

Fludrocortisone is also widely used in the treatment of orthostatic hypotension although this specific indication has not been approved by the FDA. Fludrocortisone is a synthetic adrenocortical steroid possessing very potent mineralocorticoid properties and high glucocorticoid activity. Fludrocortisone, in small oral doses (0.1mg.) produces marked sodium retention and increased urinary potassium excretion leading to enhanced plasma volume and a rise in blood pressure. Side effects include hypertension, water and sodium retention and potassium, or K+, loss. Fludrocortisone is not FDA-approved for NOH.

Intradialytic Hypotension

There is currently no FDA-approved drug for treatment or prevention of intradialytic hypotension. Common methods for treating IDH include the manual adjustment of ultrafiltration rate, a cumbersome procedure in daily practice. Some dialysis patients are known to take midodrine prophylactically, either before or during dialysis, to prevent intradialytic hypotension. However, midodrine is known to be eliminated through the kidneys and is removed by dialysis, thereby limiting its widespread use in this indication.

Fibromyalgia

While doctors have used antidepressants and pain drugs for years, in June 2007, the FDA granted its first approval for the treatment of fibromyalgia to Pfizer’s Lyrica^®, which was already used to treat epilepsy and

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neuropathic pain. U.S. sales of Lyrica^® in 2011 totaled $2 billion. Eli Lilly received approval in 2008 to market Cymbalta^®, a selective serotonin and norepinephrine reuptake inhibitor, to treat fibromyalgia and generated sales in all indications of $3.7 billion in 2011. Cypress Biosciences, with their partner Forest Laboratories, received FDA approval in early 2009 for Savella^® for the treatment of fibromyalgia. Savella^® is a norepinephrine serotonin reuptake inhibitor that increases the level of norepinephrine more than it does serotonin and had U.S. sales of $137 million in 2011.

Droxidopa Marketing

We currently estimate that nearly 400,000 patients suffer from chronic, symptomatic NOH in the United States and the European Union combined. This condition is commonly associated with PD, PAF and MSA, the latter encompassing disorders previously known as striatonigral degeneration, olivoponto-cerebellar atrophy and the Shy-Drager syndrome. In addition to the broader symptoms and impact on activities of daily living, NOH significantly increases the risk of falls in patients with PD and is believed to be responsible for significant healthcare costs due to the high incidence of falls-related injuries in this patient population, particularly in elderly patients. According to the Centers for Disease Control and Prevention, the cost of medical care for falls-related injuries was estimated to be approximately $19 billion in 2000 and is estimated to grow to $55 billion by 2020. The National Center for Injury Prevention and Control estimates this cost to be between $82 billion and $240 billion with over 500,000 hospitalizations in 2040. Preliminary data from our studies suggests that the use of Northera by patients with NOH associated with PD results in a meaningful reduction in falls in these patients. Reducing serious falls by 30% in this population, by our estimate, could result in a potential annual savings of approximately $5 billion in falls-related costs, including the costs of extended care in skilled nursing facilities.

We are currently in the process of establishing a commercial sales and marketing organization for Northera in the United States but do not currently plan to establish the necessary infrastructure to support future sales outside of the United States. As a result, we would expect to partner with or license Northera to companies with established infrastructure in the European Union and other markets. In the United States, we believe that the market for Northera in NOH, our most immediate commercial opportunity, could be addressed through the establishment of a marketing and sales organization on a stand-alone basis, which we began to establish in 2011. During 2011 and 2010, we conducted studies to further evaluate the marketing potential for Northera in the United States. The favorable results of these studies were suggestive of a potential and possibly significant market opportunity. Given the potential commercial opportunity for Northera, there may exist opportunities for us to effectively pursue co-marketing, co-promotion or other alliances for Northera within the United States.

It is possible that we might directly commercialize or co-promote droxidopa in IDH and other smaller potential therapeutic indications. Given the size of certain markets, the vast sales forces required to compete in those markets, and the necessary infrastructure required, our marketing strategy in those indications is likely to include contracting with or licensing to third parties, particularly for territories outside the United States. Out-licensing arrangements might be negotiated and entered into prior to droxidopa receiving marketing approval in one or more of the indications currently under clinical development.

METABOLICALLY INERT ANTIFOLATES

Product Overview

Our portfolio of novel antifolate compounds was originally developed by Dr. M. Gopal Nair and licensed to us in 2004. A library of orally available and metabolically inert antifolate compounds with potent autoimmune, anti-inflammatory and anti-tumor properties, these compounds are engineered to treat a broad range of immunological disorders with fewer harmful and unpleasant side effects than those typically associated with classical antifolates such as methotrexate, or MTX, currently the leading antifolate treatment and standard of care for a broad range of abnormal cell proliferation diseases.

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Drug candidates from this portfolio, including both clinical candidates CH-1504 and CH-4051, inhibit dihydrofolate reductase, an enzyme required for cell proliferation, but, due to the lack of metabolism, are devoid of the metabolites believed to play a significant role in the liver and kidney toxicities associated with long-term use of MTX and show a clinically relevant decrease in toxicity compared to MTX.

We believe these unique antifolates might have clinical advantages over MTX as they might have less toxicity and increased tolerability while maintaining equal or potentially greater efficacy. Potential advantages over existing therapies, supported by our preclinical and clinical work to date, include:

• higher response rate, including efficacy in patients that have failed MTX therapy;

• faster onset of action;

• better tolerability; and

• superior toxicity profile.

Diseases that may potentially be treated with metabolically inert antifolates include rheumatoid arthritis, psoriasis, Crohn’s disease, uveitis, ankylosing spondylitis, inflammatory bowel disease, cancer and other immunological disorders.

Clinical Development

Our portfolio of drug candidates includes multiple molecules for the treatment of various autoimmune/inflammatory diseases. The most advanced platform is a portfolio of metabolically-inert antifolate molecules engineered to have potent anti-inflammatory and anti-tumor activity to treat a range of immunological disorders, including two clinical stage product candidates designated as CH-1504 and CH-4051. CH-1504 has completed Phase II trials in rheumatoid arthritis. While we do not intend to conduct additional trials or make further investments in the development of CH-1504, clinical work related to this compound might provide meaningful informative data supporting the development of additional compounds in this portfolio. Based on preclinical and clinical findings to date, we intend to focus our clinical resources on the continued development of CH-4051, the second clinical stage compound in this portfolio and the more potent L-enantiomer of CH-1504. CH-4051 is currently being developed with a lead indication of rheumatoid arthritis, having completed a Phase I trial in April 2009 and currently being evaluated in a Phase II trial for the treatment of rheumatoid arthritis initiated in September 2010.

Rheumatoid arthritis is a chronic inflammatory disease that leads to pain, stiffness, swelling and limitation in the motion and function of multiple joints. If left untreated, rheumatoid arthritis can produce serious destruction of joints that frequently leads to permanent disability. Though the joints are the principal body part affected by rheumatoid arthritis, inflammation can develop in organs and other body parts as well. The disease currently affects over two million Americans, almost 1% of the population, and is two to three times more prevalent in women. Onset can occur at any point in life with most patients developing the disease between the ages of 35 and 50.

Given the variation in the metabolism of MTX, we believe that our novel antifolates might have significant clinical advantages over MTX in rheumatoid arthritis patients due to metabolic stability. Because of this stability, it can be hypothesized that in those patients who fail to achieve a sufficient therapeutic response to MTX as a result of either a slower or more rapid metabolism of MTX, a non-metabolized antifolate might be clinically efficacious since it is not deactivated by these enzymatic processes.

CH-4051

In parallel to our clinical development of CH-1504, we continued additional preclinical evaluation, including formulation work on the enantiomers of CH-1504. After conducting studies to determine the relative potency of the L- and D-isomers, we found that the L-isomer, now identified as CH-4051, was the more potent of the two thus prompting additional preclinical evaluation of CH-4051.

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In April 2008, we reported findings from a 17-day preclinical study of CH-4051 designed to test the efficacy of CH-4051 in a rat collagen-induced arthritis, or CIA, model. The results reveal efficacy in delaying the onset of the disease, significantly decreasing the severity and, at certain doses, completely blocking all development of rheumatoid arthritis. The most significant finding from this study was that once daily dosing of 10mg/kg of CH-4051 administered from day 0 completely prevented the onset of arthritis. Similarly, twice daily 5mg/kg doses of CH-4051 reduced the severity of disease in all animals and prevented disease onset in some. Both the once-daily dose of 10mg/kg and the twice-daily dose of 5mg/kg dose of CH-4051 demonstrated better prevention of disease than 0.25mg/kg of methotrexate (a known maximally tolerated dose, or MTD, in this model) administered every three days.

In April 2009, we announced positive findings from our Phase I study of CH-4051. Data from this single and multiple ascending dose study demonstrated that CH-4051 is safe and well tolerated up to a MTD of 7.5mg. This randomized, double-blind, placebo-controlled study was conducted at Kendle International’s Clinical Pharmacology Unit in the Netherlands. The primary objective of the study was to evaluate the safety, tolerability and pharmacokinetics of single and multiple ascending doses of CH-4051 in healthy male volunteers and to determine the MTD.

The single ascending dose, or SAD, phase of the study evaluated 5mg, 10mg, 20mg and 40mg doses of CH-4051. Each group contained 6 volunteers randomized 5:1 to receive either CH-4051 or placebo. In this escalating dose study, each cohort of subjects received a higher dose of the drug than the preceding cohort.

Based on the findings from the SAD study, we selected 5mg, 7.5mg, 10mg and 20mg of CH-4051 for evaluation in a multiple ascending dose, or MAD, study with the objective of exploring a wide range of doses, including and exceeding those believed to be therapeutically relevant. In the MAD study, 32 subjects in 4 cohorts of 8 volunteers were randomized 6:2 to receive repeat daily oral doses of CH-4051 or placebo for 14 consecutive days.

Results demonstrated that CH-4051 was well tolerated at doses up to and including 7.5mg, a dose range likely to be effective for multiple autoimmune disorders. The 5mg dose was as well tolerated as placebo. High doses of CH-4051 demonstrated mostly mild toxicities, with the 10mg and 20mg doses groups reporting both gastrointestinal side-effects and reversible liver enzyme elevations. No serious adverse events occurred during the study. The dose range determined to be safe and well tolerated in this study is substantially higher than the 0.25mg to 1mg dose range of the less potent CH-1504 that demonstrated comparable efficacy and improved safety and tolerability to methotrexate in the recent Phase II rheumatoid arthritis trial.

Based on these findings, in September 2010 we initiated a double-blind, multiple-arm randomized Phase II study, with a primary efficacy endpoint of the American College of Rheumatology, or ACR, hybrid score that combines a continuous scale of percentage improvement with the well-known ACR20/50/70.

In November 2011, we announced results from an interim analysis of unblinded efficacy data from the lower two of three doses of CH-4051 and half of the patients enrolled into the MTX control arm in this exploratory Phase II trial. Preliminary results from the unblinded interim suggest a dose-dependent therapeutic response in which patients treated with the mid-range, or 1.0 mg daily oral dose, of CH-4051 experienced similar efficacy to patients treated with a standard 20.0 mg weekly dose of MTX. This response suggests that patients currently receiving triple the dose, or 3.0 mg, of CH-4051 in the ongoing study may experience greater therapeutic benefits than patients treated with MTX.

CH-1504

In June 2005, we commenced Phase I single and multiple dose escalation clinical trials of CH-1504 in healthy volunteers. These trials were conducted at Guy’s Hospital in London under the Clinical Trial Authorization, issued by the Medicines and Healthcare Products Regulatory Agency, the United Kingdom’s health authority. The in vivo portion and preliminary analysis of these trials were completed in December 2005.

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Continuing evaluation of these results in light of additional preclinical data suggested that the bioavailability of CH-1504 was low and had significant pharmacokinetic variability. Following a review of available data suggesting the bioavailability of our free-acid formulation of CH-1504 could be improved, we reformulated CH-1504 utilizing a disodium-salt formulation. Subsequent human bioequivalence studies showed 1mg of the new formulation to be comparable to 15mg of the original free-acid formulation and demonstrated an 11.4-fold improvement in relative bioavailability, as measured by area under the curve with an 8.9-fold increase in peak plasma levels (Cmax).

In March 2009, we announced the results of a Phase II proof of concept study for CH-1504 in rheumatoid arthritis. The study was a multi-national, 12-week double-blind and randomized study in Russia, Ukraine, Poland and Canada with 200 MTX-naive rheumatoid arthritis patients. The 4-arm trial included a 0.25mg, 0.5mg or 1mg daily dose of CH-1504 versus a 20 mg weekly dose of MTX. Results showed comparable ACR 20/50/70 response rates among patients treated with CH-1504 compared to methotrexate. In addition, the efficacy of CH-1504 was associated with improved tolerability and reduced liver enzyme elevations compared with methotrexate.

Because Phase I data suggests CH-4051 retains the superior safety and tolerability profile of CH-1504 while preclinical data suggests both an enhanced potency compared to CH-1504 and significant superiority to methotrexate, we have no additional trials planned for CH-1504.

Other Potential Indications for our Antifolate Portfolio

As we proceed in our clinical development of our antifolate portfolio for rheumatoid arthritis, we expect to continue our evaluation of its potential in other indications. Additional potential indications for our antifolates include rheumatoid arthritis, psoriasis, Crohn’s disease, uveitis, ankylosing spondylitis, inflammatory bowel disease, certain cancers and other immunological disorders. If and as our antifolates advance in rheumatoid arthritis studies, we will begin to focus on the timing of clinical programs for our antifolate compounds in these additional indications. Notwithstanding the foregoing, because of our limited funding, clinical studies will initially be pursued in rheumatoid arthritis.

Antifolate Competition

There are many different drugs that are used to treat rheumatoid arthritis, including hormones, small molecules and biologics, which are manufactured using recombinant technology. The normal course of therapy for rheumatoid arthritis begins with analgesics, such as aspirin, and non-steroidal anti-inflammatory agents, followed by disease modifying anti-rheumatic drugs, or DMARDs, including low dose steroids, MTX, dihydroorotate dehydrogenase, or DHODH, inhibitors and biologics, and, finally, reconstructive joint surgery for patients failing all therapies. DMARDs are the only drugs that have been shown to alter the course of the disease.

Currently Available Antifolates. MTX, a classical antifolate, was originally used as a chemotherapy drug to treat certain kinds of cancer, but was also found to be beneficial in treating inflammatory arthritis and psoriasis. MTX is generic and marketed in both injectable and oral formulations by multiple companies including Barr Laboratories, Boehringer Ingelheim Pharma, Mayne Pharma and Mylan Laboratories. Traditional oral DMARDs include MTX, leflunomide, auranofin, sulfaszlazine, cyclosporine, hydroxychloroquine, azathioprine and penicillamine.

Currently Available Biologics. Although there have been positive results for biologics, we believe physicians are likely to reserve anti-tumor necrosis factor, or anti-TNF, and other biologic therapies for patients who have failed or had a limited response to initial MTX monotherapy. Despite increased aggressiveness of treating physicians and easier reimbursement, we believe front line use with biologics either in monotherapy or in combination with MTX is unlikely to occur due to their high costs and side effect profile. Enbrel^®, Humira^®, Remicade^® and Simponi^® are TNF blockers that have been approved by the FDA and are the top selling biologics for rheumatoid arthritis. These three TNF blockers are administered to patients by injection and can be used alone or in combination with other DMARDs, such as MTX, or NSAIDs such as aspirin or ibuprofen.

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Abbot Laboratories’ Humira^® is the top selling biologic for rheumatoid arthritis and is also indicated for psroriatic arthritis, ankylosing spondylitis, Crohn’s disease and plaque psoriasis. Humira had 2011 U.S. sales of $3.5 billion. Enbrel^®, which was developed by Amgen for rheumatoid arthritis is also indicated for juvenile rheumatoid arthritis, early rheumatoid arthritis, psoriatic arthritis and ankylosing spondylitis. Enbrel^® had U.S. sales of $3.1 billion in 2011. Remicade^® is a chimeric anti-TNF monoclonal antibody, developed by Johnson & Johnson and co-marketed with Merck, for the treatment of rheumatoid arthritis and Crohn’s disease with combined U.S. sales of $3.5 billion in 2011. Simponi^® is a fully human anti-TNG monoclonal antibody, developed by Johnson & Johnson and co-marketed with Merck, for the treatment of rheumatoid arthritis, psoriatic arthritis and ankylosing spondylitis, with total U.S. sales of $258 million in 2011. All anti-TNF biologics contain black box warnings for tuberculosis and malignancies. Rituxan^®, an anti-CD20 monoclonal antibody, is currently marketed by Genentech and Roche for rheumatoid arthritis in patients refractory to other DMARD therapy. Orencia^® (abatacept), a CTLA-4 fusion protein, developed by Bristol-Myers Squibb, is marketed as a once-monthly infusion for rheumatoid arthritis as a mono- and combination therapy with sales of $63 million in 2011. UCB is currently marketing Cimzia^®, an injectable, pegylated anti-TNF antibody fragment for the treatment of rheumatoid arthritis in the United States with sales of $318 million in 2011. Other biologics approved for the treatment of rheumatoid arthritis include Swedish Orphan Biovitrum’s Kineret^®, an IL-1 receptor antagonist, and Roche’s Actemra^®, a humanized anti-IL-6 receptor monoclonal antibody.

DMARDs and Biologics in Development. Rigel Pharmaceuticals’ R788 (fostamatinib disodium), licensed by AstraZeneca in February 2010, showed proof of concept in a Phase II clinical trial in rheumatoid arthritis and is currently in Phase III trials for the same indication. An oral syk kinase inhibitor, R788 demonstrated statistically significant results in treating rheumatoid arthritis patients. Pfizer is in pre-registration of an oral tablet formulation of CP-690550 (tasocitinib), a Janus kinase (JAK)-3 inhibitor, for the potential treatment of rheumatoid arthritis, psoriasis, asthma and inflammatory bowel disorders, including Crohn’s disease and ulcerative colitis, and the treatment of transplant rejection. We believe that with significant ACR scores and good tolerability as observed in clinical trials to date, and with the benefit of oral delivery, R788 and CP-690550 may be favorable alternatives to the currently approved biological agents. Additionally, AB Science SA has masitinib, an inhibitor of c-kit, Lyn and PDGF-R in Phase IIb/III for rheumatoid arthritis. However, we anticipate that, like most biologics, these compounds would work best in combination with MTX or similar antifolates and should not significantly impact the opportunity available to our antifolate portfolio. Numerous biologics, including tabalumab, ixekizumab, secukinumab, neutrazumab, pateclizumab and sarilumab are currently in various stages of clinical development for rheumatoid arthritis.

Antifolate Marketing

Given the size of the rheumatoid arthritis market, the vast sales forces required to compete in this market, and the necessary infrastructure required, our marketing strategy for our antifolates is likely to include contracting with or licensing to third parties, particularly for territories outside the United States. It is possible that we might directly commercialize or co-promote our antifolate compounds in the smaller therapeutic indications such as psoriasis or irritable bowel disease. Out-licensing arrangements might be negotiated and entered into prior to one or more of our antifolate drug candidates being approved for marketing.

I-3D PORTFOLIO

In May 2006, we signed an agreement with Active Biotech AB for the co-development and commercialization of the I-3D portfolio, a group of orally active compounds that inhibit the enzyme DHODH for the treatment of autoimmune diseases and transplant rejection. At the time of the agreement, Active Biotech had already isolated more than 15 compounds and conducted extensive preclinical modeling resulting in the identification of two potential lead compounds.

Having previously demonstrated proof of concept in both rheumatoid arthritis and transplant rejection in animal models, the joint development committee selected AB-224050 as the first I-3D compound to undergo

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IND-enabling toxicology studies during the third quarter of 2006. As part of the ongoing evaluation and preparation for Phase I trials, the joint development committee initiated a Phase 0 (micro-dosing) study to evaluate the half-life of AB-224050 in humans in the first quarter of 2007. Based on the results of the micro-dosing study and other ongoing preclinical activity, it was determined that, while demonstrating a significantly shorter half-life than Arava^®, AB-224050 would require additional work prior to the commencement of Phase I clinical trials. In 2007, the joint development committee continued preclinical optimization of AB-224050 and conducted further comparisons of AB-224050 versus other compounds in the I-3D.

In April 2008, following a decision to focus its resources on its immunomodulatory compounds, Active Biotech AB discontinued its participation in the I-3D co-development program and granted us exclusive global rights to the portfolio in exchange for royalties on future sales. As a result of our limited funding and strategic development efforts associated with the development of droxidopa and our antifolate drug candidates, we currently do not have any active clinical or preclinical programs associated with compounds from this portfolio.

In addition to therapeutic applications in rheumatoid arthritis, compounds from the I-3D portfolio are believed to have broad clinical application in immune-mediated inflammatory disorders including transplant rejection, psoriasis and systemic lupus erythematosus.

Government Regulation

The FDA and foreign regulatory agencies regulate many aspects of product development and marketing of our product candidates including research, development, manufacture, labeling, promotion, advertising, distribution, and marketing. Meeting the various U.S. and international regulatory requirements often takes several years, and the actual time required can vary substantially based upon the type, complexity and novelty of the pharmaceutical product and the therapeutic indication. Furthermore, meeting the regulatory requirements as well as maintaining compliance often necessitates implementing costly procedures. Failure to comply with the applicable requirements mandated by the FDA and other regulatory agencies can result in administrative or judicial sanctions and/or fines. In the United States, such sanctions may include the FDA’s refusal to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.

Success in preclinical or early-stage clinical trials does not ensure success in late-stage clinical trials. Data obtained from preclinical and early stage clinical activities are not always conclusive and are susceptible to varying interpretations that could negatively impact our trials and delay, limit or prevent regulatory approval. In addition, we cannot be certain that the FDA or any other international regulatory agency will grant approval for any of our products under development on a timely basis, if at all. Delays in obtaining, or failures to obtain, regulatory approvals would have a material adverse effect on our business. Even if a product receives regulatory approval, the approval might be significantly limited to specific indications or uses. After regulatory approval is obtained and the product becomes available on the market, the later discovery, over time, of previously unknown problems with a product might result in restrictions on the product or even complete withdrawal of the product from the market.

Drug Approval Process in the United States

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and those regulations are published in the Federal Register. None of our drugs may be marketed in the United States until the drug has received FDA approval. The process required before a drug can be marketed in the United States includes:

• preclinical laboratory tests, animal pharmacology and toxicology studies, and formulation studies;

• submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must be cleared by the FDA before human clinical trials can begin in the United States;

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• adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;

• submission to the FDA of a new drug application, or NDA;

• satisfactory completion of any FDA inspections of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practices, or cGMPs;

• FDA review and approval of the NDA; and

• the completion of any contingent requirements of the FDA as a condition to maintaining marketing approval once granted.

Preclinical tests include laboratory tests and animal studies. The conduct of the preclinical tests as well as the formulation of the compounds must comply with FDA regulations. The preclinical test data, together with manufacturing information and analytical data of product chemistry are submitted to the FDA as part of an IND, which must become effective before human clinical trials can begin. Human clinical trials submitted to the FDA as part of an IND will automatically become effective 30 days after receipt by the FDA, unless, within those 30 days, the FDA raises concerns or questions regarding the clinical trials, or places a clinical hold on the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be certain that submission of an IND will result in clearance by the FDA to allow clinical trials to begin.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified clinical investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each clinical trial protocol must be submitted to the FDA as part of an IND.

Clinical trials typically are conducted in three sequential phases, but the phases might overlap. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an Institutional Review Board for each institution where the trials will be conducted. Study subjects must sign an informed consent form before participating in a clinical trial. The normal clinical trial phases are:

• Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness.

• Phase II usually involves trials in a small patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and evaluate preliminarily the efficacy of the drug for specific indications.

• Phase III trials usually involve further evaluation of clinical safety and efficacy by using the drug in its final form in a larger patient population.

There can be no assurance that Phase I, Phase II, or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, clinical trials might be suspended by us or the FDA at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Once the required clinical testing is successfully completed, the results of the preclinical studies and of the clinical studies, as well as information on the manufacture and composition of the drug, are submitted to the FDA in an NDA. If the FDA grants NDA approval, the product can then be marketed for one or more approved indications. On the other hand, if the FDA reviews the application and deems it to be inadequate to support the NDA approval, and hence, marketing approval, we cannot ensure that any approval will be granted on a timely basis, if at all. The FDA might also refer the application to the appropriate advisory committee, typically a panel of clinicians and scientists, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.

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The overall drug development process, including preclinical testing, clinical trials through to marketing approval requires substantial time, effort and financial resources.

The FDA has various programs, including fast track, priority review, and accelerated approval, that are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that might be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that provide meaningful benefit over existing treatments. While Northera has qualified as Fast Track and our NDA for Northera has been accepted for priority review, we cannot ensure that any of our other drugs will qualify for any of these programs, or, to the extent that a drug does qualify, that the review time will be reduced.

Section 505b2 of the FDCA allows the FDA to approve a follow-on drug on the basis of data in the scientific literature or data used by the FDA in the approval of other drugs. This procedure potentially makes it easier for drug manufacturers to obtain rapid approval of new forms of drugs based on proprietary data of the original drug manufacturer.

Before approving an NDA, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and may not approve the product unless the manufacturing site is good manufacturing practices, or cGMP, compliant. Similarly, the FDA may inspect clinical sites and analytical laboratories to determine compliance with good clinical and laboratory practices.

If the FDA evaluates the NDA, the FDA might issue an approval letter, or in some cases, an approvable letter followed by an approval letter. Both letters usually contain a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue a final approval letter. The final approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA might require post-marketing testing and surveillance to monitor the drug’s safety or efficacy, or they may impose other conditions.

After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes, or making certain additional labeling claims, are subject to further FDA review and approval and may require the submission of a supplemental NDA. Before we could market our product candidates for additional indications, we must obtain additional approvals from the FDA. Obtaining approval for a new indication generally requires that additional clinical studies be conducted. We cannot ensure that any additional approval for new indications, if any, for any product candidate will be approved.

Post-Approval Requirements

Often, even after a drug has been approved by the FDA for sale, the FDA might require that certain post-approval requirements be satisfied, including the conduct of additional clinical studies. If such post-approval conditions are not satisfied, the FDA might withdraw its approval of the drug. In addition, holders of an approved NDA are required to:

• report certain adverse reactions to the FDA;

• comply with certain requirements concerning advertising and promotional labeling for their products; and

• continue to have quality control and manufacturing procedures conform to cGMP after approval.

The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities, including an assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. We intend to use, or have contracted with, third party manufacturers to produce our products in clinical quantities

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and in commercial quantities for Northera, and we intend to do so with any future manufacturing needs. Future FDA inspections might identify compliance issues at the facilities of our contract manufacturers that might disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval might result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.

Orphan Drug Designations

The FDA can grant orphan drug designation to drugs intended to treat a rare disease or condition, which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. If the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Orphan drug designation does not necessarily convey an advantage in, or shorten the duration of, the review and approval process. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the FDA will not approve any other applications to market the same drug for the same indication for a period of seven years from approval, except in certain very limited circumstances. Orphan drug designation does not prevent competitors from developing or marketing different drugs for that indication.

Regulations Outside the United States

Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the United States, although the requirements governing the conduct of clinical trials, including additional clinical trials that might be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices might not be approved for such product.

In Europe, marketing authorizations may be submitted via a centralized, decentralized or mutual recognition approach (or at a national level). The centralized procedure is mandatory for the submission of high technology/biotechnology products, products with an orphan medicinal product designation, if filing for indications contained in such designation, and certain therapeutic areas of community interest. This procedure provides for the grant of a single marketing authorization that is valid in all European Union member states. It is optional for those products and indications deemed innovative and also to generic products where the originator product was authorized via a centralized procedure. The decentralized and mutual recognition procedures are available for those products not subject to a mandatory centralized procedure. There can be no assurance that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all.

Manufacturing

We own no manufacturing facilities, quality control laboratories or warehouses for storage and distribution of our product candidates. We intend to use, or have contracted with, third-party contractors for manufacturing drug substances under development or planned for commercialization. We also use contractors for preformulation, formulation and analytical development as well as manufacturing of drug products used for clinical studies. If any of our products are approved by the FDA for marketing, we plan to use third-party contractors for producing the commercial product and have contracted with manufacturers to do so for Northera when it is launched. This strategy enables us to direct our financial resources to product development without devoting resources to the time and costs associated with building manufacturing plants and laboratories and we plan on continuing this strategy for the foreseeable future.

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We obtain the active pharmaceutical ingredient for droxidopa from DSP, pursuant to our exclusive license agreement with DSP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—License Agreement and Development Agreement Obligations” in Part II, Item 7 of this Report for a description of that agreement. In October 2011, we committed to the purchase of active pharmaceutical ingredient from DSP to be used in the production of commercial inventory in preparation for the market launch of Northera in the United States. We will rely on Patheon Inc. with whom we entered into a manufacturing services agreement to manufacture and package Northera. Patheon has the sole right to manufacture and package Northera in the U.S. for the initial term of the agreement, which is three years from the date that Northera is approved, if at all, by the FDA. Pursuant to the agreement, we have the right to qualify a single alternative manufacturer.

Intellectual Property

We actively seek to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other key markets. Our goal is to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates, including CH-1504, CH-4051 and droxidopa, and any future product candidates and proprietary technologies through a combination of contractual arrangements and patents, both in the United States and other countries.

Our patent estate for the antifolate portfolio, including CH-1504 and CH-4051, includes three issued U.S. patents, one issued patent in each of the European Union, Japan, New Zealand and Australia, ten pending U.S. patent applications, three pending Patent Cooperation Treaty (PCT) patent applications and several related patent applications pending in countries outside the United States, including Europe and Japan. The issued U.S. patents are U.S. Patent No. 5,912,251, issued June 15, 1999, and U.S. Patent No. 7,829,708, issued November 9, 2010. In addition, on May 31, 2011, we were issued U.S. Patent No. 7,951,812 entitled “Substituted Pyrrolo[2,3-D]Pyridines as Antifolates.” The pending applications are directed to compositions, methods of use and certain new antifolate compounds.

The issued U.S. and European patents cover our current product candidates, CH-1504 and CH-4051, as well as certain other antifolate compounds, including claims to these compounds as compositions of matter, in pharmaceutical formulations and for use in treatment of certain diseases. The pending U.S. patent applications and international applications expand our proprietary position, claiming additional compounds and their uses as well as new uses of CH-4051. We plan to continue to strengthen our patent estate on our antifolate portfolio by filing and pursuing additional patents.

Our patent estate for droxidopa includes one issued U.S. patent, an issued New Zealand patent, eight pending U.S. patent applications and related patent applications pending in countries outside the United States, including Europe and Japan which are directed to pharmaceutical compositions comprising droxidopa and therapeutic methods of treatment using droxidopa. The issued U.S. patent is U.S. Patent No. 8,008,285, issued August 31, 2011 and entitled “Droxidopa and Pharmaceutical Compositions Therof for the Treatment of Fibromyalgia.” We plan to continue to strengthen our patent estate on droxidopa by filing and pursuing additional patents.

The patent estate for the I-3D portfolio includes U.S. Patent No. 7,074,831, issued July 11, 2006, related issued patents in Europe, China, New Zealand, Australia, Israel, South Africa and Mexico, as well as a pending U.S. patent application and a number of related patent applications pending in countries outside the United States.

Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents are unobtainable or difficult to obtain, we rely on trade secret

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protection and confidentiality agreements. To this end, it is our policy to require all of our employees, consultants, advisors and contractors to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.

Employees

We have attracted and retained a management team with core competencies and expertise in numerous fields, including manufacturing, research, clinical, regulatory, sales, marketing and business development. Our management and advisors are comprised of experienced pharmaceutical and biotechnology industry veterans and respected experts. We are led by our Chief Executive Officer, Dr. Simon Pedder, formerly Vice President, Pharmaceutical Business, Oncology at Hoffmann-La Roche Inc., who has over 20 years of senior pharmaceutical management experience, including drug development and business experience. During his time at Roche, Dr. Pedder was responsible for a number of global development programs, successful registrations and product launches.

At March 2, 2012, we had a total of 49 employees. We believe the relationships with our employees are satisfactory. We anticipate that we will need to identify, attract, train and retain other highly skilled personnel as we continue to develop our product candidates and commercialize Northera in the United States. In particular, we are currently in the process of recruiting approximately 85 sales representatives to address the market opportunity in the United States should our NDA for Northera be approved. Hiring for such personnel is competitive, and there can be no assurance that we will be able to retain our key employees or attract, assimilate or retain the qualified personnel necessary for the development of our business.

Where you can find additional information

Our website address is www.chelseatherapeutics.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Executive Officers of the Registrant

The following table sets forth the name, age and position of each of our executive officers as of March 2, 2012.

Name	Age		Position
Simon Pedder		51	President, Chief Executive Officer and Director
J. Nick Riehle		59	Vice President, Administration and Chief Financial Officer
William D. Schwieterman		54	Vice President, Chief Medical Officer
L. Arthur Hewitt		58	Vice President, Chief Scientific Officer
Keith Schmidt		61	Vice President, Sales and Marketing
Joseph Oliveto		44	Vice President, Operations
Michael J. Roberts		42	Vice President, Business Development

Simon Pedder, Ph.D.—President, Chief Executive Officer and Director. Dr. Pedder joined us from Hoffmann-La Roche Inc. in April 2004 where he was Vice President of Pharmaceutical Business, Oncology and an executive officer since February 2003. Prior to that he served as the Vice President, Drug Development at Shearwater Corporation from May 2001 until December 2002. Prior to that Dr. Pedder served in a number of positions at Hoffmann-La Roche, including as Director, Pharmaceutical Business, Pharmaceutical Development and Project Management from May 1994 until May 2001. While at Hoffmann-La Roche, Dr. Pedder was in charge of the development of Pegasys and Copegus, which have combined annual worldwide sales of over $1 billion, and oversaw a number of successful NDAs. Dr. Pedder has his Ph.D. in Pharmacology from the College of Medicine at the University of Saskatchewan in Canada.

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J. Nick Riehle, MBA—Vice President, Administration and Chief Financial Officer. Mr. Riehle has been our Vice President, Administration and Chief Financial Officer since July 2004. Prior to that he served as Chief Financial Officer at HAHT Commerce, Inc., a software company, from August 1996 until June 2003 and as an independent contractor from July 2003 until July 2004. Prior to that, Mr. Riehle served in various roles at Nortel Networks and IBM. Mr. Riehle has his Bachelor of Commerce from McGill University, his MBA from York University and earned a Certified Management Accountant (CMA) designation from Ontario, Canada.

William D. Schwieterman, M.D.—Vice President, Chief Medical Officer. Dr. Schwieterman joined the company as an employee and officer in October 2009 after serving for more than a year on our Board of Directors and several years as a consultant and member of our Scientific Advisory Board for rheumatology. He is a rheumatologist and board-certified internist who was formerly Chief of the Medicine Branch and Chief of the Immunology and Infectious Disease Branch in the Division of Clinical Trials at the FDA. In these capacities and others, Dr. Schwieterman spent 10 years at the FDA in the Center for Biologics overseeing a wide range of clinical development plans for a large number of different types of molecules. Dr. Schwieterman helped author the FDA’s “Good Review Practices” for investigational products, and was instrumental in developing several guidance documents for the industry. After leaving the FDA, he acted as an independent consultant to biotechnology and pharmaceutical companies, focusing on clinical drug development and regulatory matters. He currently serves on the board of directors of OXiGENE, Inc., a publicly traded company, and Neumedics, Inc., a privately held drug development company. Dr. Schwieterman holds a B.S. and M.D. from the University of Cincinnati.

L. Arthur Hewitt, Ph.D.—Vice President, Chief Scientific Officer. Dr. Hewitt was named our Chief Scientific Officer in January 2010 after serving as our Vice President, Drug Development since May 2004. Prior to that he served as an independent contractor from January 2003 to May 2004, as Director of Scientific Affairs at Shearwater Corporation, a drug delivery company, from October 2002 until January 2003 and as Director of Scientific Affairs for Amgen Canada from July 1991 until November 2000. During his years at Amgen, Dr. Hewitt oversaw the approval of Neupogen, Stemgen and Infergen. Dr. Hewitt obtained his Ph.D. in Pharmacology from the Medical School at the University of Montreal.

Keith Schmidt, MBA—Vice President, Marketing and Sales. Mr. Schmidt has served as our Vice President, Marketing and Sales since July 2006. In February 2007, Mr. Schmidt became one of our executive officers. Prior to that he was President of his biotech consulting company, Tellico Pharma LLC from June 2005 and served as Vice President of Thomson Healthcare Advanced Therapeutics Communications, a medical education company, from February 2002 until May 2005. From 1996 until January 2002, Mr. Schmidt served as an International Business Leader for Hoffmann-La Roche where he developed and led the global sales and marketing launch efforts for Pegasys and Copegus. Mr. Schmidt earned a Bachelor of Science from South Dakota State University and an MBA from the University of San Francisco.

Joseph Oliveto, MBA—Vice President, Operations. Mr. Oliveto joined us in June 2008 following a two-year assignment as Executive in Residence at Pappas Ventures, a life sciences venture capital firm. Prior to Pappas Ventures, he served in a number of progressively senior positions at Hoffmann-La Roche, most recently as the Global Alliance Director for Roche’s licensing organization. Previous experience at Roche includes clinical development, project management, manufacturing process improvement and global business. During his tenure, he played an integral part in the success of multiple NDA filings, developed comprehensive launch programs, including those for both Pegasys and Copegus, and closed multiple licensing deals. Mr. Oliveto obtained a BA in Chemistry and an MBA from Rutgers University.

Michael J. Roberts, Ph.D.—Vice President, Business Development. Dr. Roberts was named an officer of Chelsea in January 2010 after having served since August 2004 as Senior Director of Business Development. He joined us from Nektar Therapeutics where he was Director of Business Development for their Molecule Engineering technology. Prior to this, he was Manager of Biopharmaceutical Research at Shearwater Corporation where he led and was successful in the development of preclinical drug candidates from initial stages of research through Phase I clinical study. Dr. Roberts obtained his Ph.D. in Materials Science from the University of Alabama in Huntsville and B.S. in Chemical Engineering from Pennsylvania State University.

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ITEM 1A. RISK FACTORS.

This Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report and in any documents incorporated in this Report by reference.

Risks Related to Our Business

We currently have no product revenue and may need to raise additional capital to operate our business.

To date, we have generated no product revenue. Until, and unless, we receive approval from the FDA and other regulatory authorities for our product candidates, we cannot sell our drugs and will not have product revenue. Currently, our primary product candidates are droxidopa and our antifolates portfolio, and none are approved by the FDA nor, with the exception of droxidopa which has Japanese approval, any other regulatory agency for sale. Therefore, until we are able to successfully and profitably commercialize our drugs, we will have to fund all of our operations and development expenditures from cash on hand, equity or debt financings, licensing fees and grants. Operating expenses for 2011 totaled approximately $50.6 million, including non-cash items, and we anticipate that 2012 operating expenses will increase further with our significant spending related to marketing and commercialization activities for the planned launch of Northera in the United States. Should we be unable to commercialize Northera in 2012, we will continue to have significant ongoing costs in other areas of the business and, given our initial spending and cost commitments for commercialization activities, would anticipate substantial expenses early in 2012 as we wind down such commercialization activities.

In order to fund operations and increase our cash reserves, we may seek to out-license our products or seek additional sources of financing and such opportunities might not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we might not be able to complete planned preclinical and clinical trials, obtain approval of any product candidates from the FDA and other regulatory authorities, or successfully complete the commercialization of our drug products. In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts, forego attractive business opportunities or curtail operations. Any additional sources of financing could involve the issuance of our equity securities, which would have a dilutive effect on our stockholders.

While we are hopeful that we will be able to commence marketing Northera in 2012, we may not receive FDA approval of our NDA or such approval might be delayed. If approval is not received, we will have no product revenue and, if delayed, product revenue will not adequately contribute to the funding of operating expenses.

We are not currently profitable and might never become profitable.

We have a history of losses and expect to incur substantial losses and negative operating cash flow for the foreseeable future, and we might never achieve or maintain profitability. Even if we succeed in commercializing Northera, we might not become profitable and could continue to incur substantial losses for the foreseeable future. From inception through December 31, 2011 we had losses of $183.3 million. We had net losses of $50.5 million, $37.3 million and $25.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Actual losses will depend on a number of considerations, including:

• the pace and success, if any, of commercialization and marketing efforts for Northera in the U.S.;

• the pace and success of preclinical development and clinical trials for droxidopa, antifolates and other product candidates;

• possible out-licensing of our product candidates;

• regulatory review and approval for our various product candidates, particularly our NDA for Northera which is being reviewed by the FDA;

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• discussions with regulatory agencies concerning the design of our clinical trials and/or the adequacy of prior trials and pre-clinical studies for regulatory approval for any of our product candidates;

• requirements for post-approval trials and safety monitoring programs, particularly for Northera;

• our ability to identify and recruit patients into our clinical trials at costs consistent with our current estimates;

• the pace of development of new intellectual property for our existing product candidates;

• in-licensing and development of additional product candidates;

• implementing additional internal systems and infrastructure; and

• hiring additional personnel.

To fund our ongoing development activities, we will need to generate significant revenue in order to achieve and maintain profitability. Even if Northera is approved for marketing in the U.S., we might not be able to generate revenue or achieve profitability in the future and are unlikely to do so in the near term. Our failure to achieve or maintain profitability could negatively impact the value of our securities.

We are a development-stage company and might not be able to commercialize any product candidates.

We are a development-stage company and have not demonstrated our ability to perform the functions necessary for the successful commercialization of any product candidates. The successful commercialization of any product candidates will require us to perform a variety of functions, including:

• continuing to undertake preclinical development and clinical trials;

• participating in regulatory approval processes;

• formulating and manufacturing products;

• conducting sales, marketing and distribution activities; and

• adding administrative and operational infrastructure, as required, to remain compliant with regulations governing pharmaceutical sales and marketing programs.

Our operations have been limited to organizing and staffing our company, negotiating in-licensing agreements with our partners, acquiring, developing and securing our proprietary technology, participating in regulatory discussions with the FDA, the EMA and other regulatory agencies, undertaking preclinical trials and clinical trials of our product candidates, and, more recently, preparing for the planned commercial launch in the United States of Northera in anticipation of regulatory approval. These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability of investing in our securities.

Our potential future earnings may be reduced should we decide to out-license one or more of our drug product candidates.

We may decide to out-license one or more of our drug product candidates, reducing future profits available to us. Should we license our drug product candidates to another pharmaceuticals company, it would allow the partner to market and sell our compounds in one or more markets around the world. If either the antifolates or droxidopa are licensed to a strategic partner, the profit available to us may be substantially reduced from what might otherwise be possible should we retain all rights to the products and market and sell them directly.

We might not obtain the necessary U.S. or worldwide regulatory approvals to commercialize any product candidates.

We cannot assure you that we will receive the approvals necessary to commercialize our product candidates including Northera, our antifolates, or any other product candidate either currently in our drug candidate portfolio

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or which we might acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the United States and approvals from equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA demonstrating that the product candidate is safe for humans and effective for its intended use. This demonstration requires significant research and animal tests, which are referred to as preclinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies. The approval process might also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals might:

• delay commercialization of, and our ability to derive product revenue from, a product candidate;

• reduce available time during which our intellectual property is protected under various U.S. and foreign patents;

• impose costly procedures on us; and

• diminish any competitive advantages that we might otherwise enjoy.

Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory approval for any of our product candidates. Failure to obtain FDA approval of product candidates, particularly Northera, droxidopa for other indications or our antifolates, will severely undermine our business and could substantially extend the period before we have a saleable product, leaving us without any source of revenue until another product candidate can successfully be developed and commercialized. There is no guarantee that we will ever be able to develop and commercialize or acquire another product candidate or to obtain approval for any such additional product candidate that might be acquired.

In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize any drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. We cannot assure you that we will receive the approvals necessary to commercialize product candidates for sale outside the United States.

Although we made changes to Study 306 based on results of an interim analysis, there can be no assurance that the results of this Phase III trial will be successful.

In February 2011, we announced that an interim analysis of Study 306 indicated that further recruiting into this study was likely to be futile with respect to the original primary endpoint of the study, namely, the OHQ composite. Subsequently we unblinded these 51 patients (now designated as the Study 306A population) and determined that favorable trends were seen in secondary outcome measures including falls, OHQ Item 1 (dizziness), the Movement Disorder Society sponsored revised version of the Unified Parkinson’s Rating Scale, or MDS-UPDRS, and Hoehn Yahr scores. We believe that these favorable trends, particularly in the objective endpoint of falls, are supportive of prior study results related to symptomatic endpoints. The failure to produce favorable results in the OHQ composite is not believed to be contradictory to prior studies due to differences in the characteristics of the specific populations and the length of the study treatment period. Nonetheless, we cannot predict whether the FDA will agree with this assessment. Specifically:

• Although we changed the Study 306B primary endpoint to the reduction of falls and although this endpoint trended favorably in 306A patients, there is no guarantee that the results for the Study 306B population will show statistical significance in this endpoint; and

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• The targeted geographic distribution of patients as well as the targeted patient indication in Study 306B are different than in Study 302 and Study 301 and we cannot be certain that we will be able to meet our timeline for this study, particularly with respect to patient recruitment.

The FDA may not approve our NDA for Northera.

In November 2011, the FDA accepted for filing our NDA, filed in September 2011, seeking approval to market Northera for the treatment of symptomatic NOH in patients with primary autonomic failure, dopamine-ß-hydroxylase deficiency and non-diabetic autonomic neuropathy. The NDA was prepared based on the results from our Northera registration program, including data from our two completed Phase III efficacy studies in NOH, two long-term open-label extension studies, a dedicated thorough QTc study, and a 24-hour ambulatory blood pressure monitoring safety study, and supportive data obtained from DSP. The FDA also granted our request for a Priority Review, and, under PDUFA, the FDA’s goal is to review and act on the NDA by March 28, 2012.

In addition, the FDA scheduled a review of the Northera NDA at a February 2012 meeting of its CRDAC. On February 23, 2012, the FDA’s CRDAC voted 7 to 4 to recommend approval of Northera.

While we believe that the design, performance and results of Study 302 and Study 301 are adequate to meet the FDA’s expectations and we received a recommendation for approval from the CDARC, we continue to face risks associated with our NDA filing, including, but not limited to, the following:

• while the CRDAC recommended that the FDA approve our NDA to market Northera in the United States, the recommendation is non-binding on the FDA and though the FDA will take the recommendation into consideration in its review of the NDA, we cannot be assured that the FDA will agree with the recommendation and approve the NDA;

• the FDA may fail to accept as an appropriate primary endpoint of Study 301 the relative improvement in the OHQ composite score between Northera and placebo;

• the FDA may find that the safety database information contained in the NDA is inadequate to effectively establish the clinical safety of Northera or that certain adverse events reported in our clinical trials are not adequately resolved;

• the FDA may find that certain adverse events in the Japanese post-approval safety monitoring programs, particularly those related to neuroleptic malignant syndrome, or NMS, are not adequately resolved;

• the FDA may find that the clinical data submitted in the NDA is not sufficient to establish the clinical efficacy of Northera; and

• while the FDA previously agreed, during a December 2010 pre-NDA assessment meeting, that our NDA for Northera could be submitted based on combined data from Study 301 and Study 302 and that results from Study 306 would not be required as part of the integrated summary of efficacy for the indication claimed in the filing, there can be no assurance that the FDA will not require additional clinical efficacy to support approval of our NDA.

Any program delays resulting from the risks as outlined above might require additional financing for the Northera NOH program. If we require additional capital for the continued development of droxidopa, we may not be able to raise capital on favorable terms or at all. If we issue equity in such financing, it would cause dilution for our stockholders, that could be significant depending on the price and the amount of stock sold. We may determine that it is in our best interest to out-license droxidopa. However, given the regulatory and financing uncertainties, we may not be able to complete an out-licensing agreement on terms beneficial to us, or at all.

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We have not determined any additional requirements that may be needed in order to meet the expectations of the European Medicines Agency, or EMA, or other foreign regulatory agencies in order to obtain marketing approval for Northera outside the United States.

Since an initial discussion several years ago, we have only conducted limited discussions of the specifics of our clinical program with the EMA, and several individual European Union, or EU, countries’ regulatory agencies, and we have not yet determined if our current program for Northera in NOH will be acceptable for approval in EU, or any particular member country. While we continue to believe that the safety and efficacy data from Study 306B with an extended period of placebo control will better meet the requirements as expressed by the EMA previously, this data is now expected to be available in the third quarter of 2012, thus delaying the EMA filing until at least that timeframe. In 2011, we conducted discussions with several EU member country regulatory agencies to better understand their and, derivatively, the EMA’s expectations with regard to their efficacy requirements to determine if it might be appropriate to file for marketing approval prior to availability of Study 306B safety data. However, until we proceed further with those discussions it will not be clear that the existing Study 301 and Study 302 data, along with data from the related extension studies, will be sufficient for filing in the EU and if not, whether Study 306B data, with reduction of falls in patients with PD as a primary endpoint, will be adequate to complete the efficacy and safety packages to support such a filing. If not, we may be required to conduct additional efficacy trials and, regardless, we cannot guarantee that Study 306B data will show a significant symptomatic benefit for patients with NOH or that any subsequent trials will provide adequately favorable data.

Our product candidate CH-4051 has had only limited formal clinical trials.

Our product candidate CH-4051 is in an early stage of development and requires extensive clinical testing. In April 2009, we announced positive findings from our Phase I dose escalation clinical trials of CH-4051 in humans in Kendle International’s Clinical Pharmacology Unit, Utrecht, Netherlands under the authority of Stichting Therapeutische Evaluatie Geneesmiddelen—Medisch Ethische Toetsingscommissie, an Independent Ethics Committee. In November 2011, we announced preliminary results from a planned unblinded, interim efficacy analysis for the lower dose patients in our Phase II trial of CH-4051. The analysis included unblinded data from the lower two of three doses of CH-4051 and half the patients enrolled into the MTX control arm. Preliminary results suggest a dose-dependent therapeutic response in which patients treated with the mid-range, or 1.0mg daily oral dose, of CH-4051 experienced similar efficacy to patients treated with a standard 20.0mg weekly dose of MTX. This response suggests that patients currently receiving triple the dose, or 3.0mg, of CH-4051 in the ongoing study may experience greater therapeutic benefits than patients treated with MTX; however, there can be no assurance that such benefits will be observed in the study. In addition, we might encounter toxicity or other safety issues at the higher dose levels in the study. We currently intend to seek a partner to assist us in the development of CH-4051 and our portfolio of antifolates after the completion of Phase II proof-of-concept studies for CH-4051 in rheumatoid arthritis, results of which are expected to be available in the second quarter of 2012. After the completion of those trials and depending on available funding, we may also initiate additional Phase II studies in rheumatoid arthritis and other indications as appropriate. We currently estimate a global filing of the NDA no sooner than 2013. However, at any point during the process we might decide to focus our efforts on a different lead compound, and we cannot predict with any certainty the success or timing of our clinical trials, whether there might be sufficient interest by others to license the compounds, if or when we might submit an NDA for regulatory approval of this product candidate or whether such an NDA will be accepted. We do not expect to conduct additional trials or make further investments in the development of CH-1504, formerly our lead antifolate product candidate.

There has been only very limited testing of our I-3D product candidates.

Our I-3D product candidates are early in their development. None of the candidates have had adequate toxicology testing in animals to permit clinical testing and there is no clinical evidence of efficacy for any of these candidates, despite limited similarities with compounds currently marketed by others. Animal toxicology

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trials on our I-3D compounds may not permit further development of these drugs or we may have to carry out toxicology trials on several compounds before we find one that is appropriate for clinical testing, if at all. Once clinical trials are undertaken, the compound or compounds may not prove adequately safe and efficacious in humans and may not be approved by the FDA or other regulatory agencies. Moreover, because of the scarcity of capital and competing priorities within our development program we do not know when we will be able to continue any such testing or commence clinical trials.

Clinical trials are very expensive, time-consuming and difficult to design and implement.

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. For example, because we did not receive orphan drug status from the EMA for droxidopa as a treatment for Parkinson’s disease, our clinical trials for that indication might have to be more involved and take longer to complete and get reviewed than otherwise would have been the case. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials might be delayed by several factors, including:

• unforeseen safety issues;

• clarification of dosing issues;

• lack of effectiveness during clinical trials;

• slower than expected rates of patient recruitment for our ongoing trials;

• inability to monitor patients adequately during or after treatment;

• inability or unwillingness of medical investigators to follow our clinical protocols; and

• unexpected emergence of competitive drugs against which our compounds might compete for clinical trial resources or need to be tested.

In addition, we or the FDA or another governing regulatory agency may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the regulatory agency finds deficiencies in the conduct of these trials or our regulatory submissions. Therefore, we cannot predict with any certainty the schedule for our current or any future clinical trials.

The results of our clinical trials might not support our product candidate claims.

Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product candidate claims. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The clinical trial process might fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and might delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the filing of our NDAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenue.

We intend to explore additional indications for droxidopa; however these programs may not prove successful.

We have announced our exploration of certain additional indications for droxidopa and we may make similar announcements in the future. While trials conducted by our partner DSP for the Japanese market provide evidence of efficacy for certain indications, other indications may be explored for which we have no existing clinical evidence of efficacy. Such trials are likely to be very costly. We do not have market approval from the FDA or other regulatory agencies for any of the indications we are exploring and there are no guarantees that additional clinical trials will provide new evidence of efficacy in the targeted indications or permit us to gain market approval from regulatory agencies.

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Physicians and patients might not accept and use our drugs.

Even if the FDA approves any of our product candidates, physicians and patients might not accept and use them. Acceptance and use of our products will depend upon a number of factors including:

• perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our drug;

• cost-effectiveness of our product relative to competing products;

• understanding by prescribing physicians of the medical conditions we are attempting to address;

• availability of reimbursement for our product from government or other healthcare payers; and

• effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.

Because we expect that sales of our product candidates could, if approved, generate a substantial portion of our product revenue for an extended period, the failure of such a drug to find market acceptance would harm our business and could require us to seek additional financing or curtail our operations.

Our drug development program depends upon third-party researchers who are outside our control.

We depend upon independent clinical research organizations, investigators and other collaborators, such as universities and medical institutions, to conduct our preclinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. They might not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug development programs, if their performance is substandard or the FDA determines there are issues upon review of the study data, the approval of our FDA applications, if any, and our introduction of new drugs, if any, will be delayed. If we cannot successfully enter into new agreements with outside collaborators on acceptable terms, or if we encounter disputes over or cannot renew or, if necessary, amend existing agreements, the development of our drug candidates could be delayed. These collaborators might also have relationships with other commercial entities, some of which might compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.

Our drug development program also depends upon our partners who are outside our control.

We have licensed certain rights related to droxidopa from DSP and depend upon them for data and support in advancing our clinical program for this compound. In addition, DSP is currently the preferred manufacturer of this compound for our clinical program and commercialization efforts. Without the timely support of DSP or any other partners, our drug development programs could suffer significant delays, require significantly higher spending or face cancellation.

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We rely exclusively on third parties to formulate and manufacture our product candidates.

We have only limited experience in drug formulation and no experience in drug manufacturing and do not intend to establish our own manufacturing facilities. We lack the resources and expertise to formulate or manufacture our own product candidates. While we have a contract in place with DSP and another manufacturer to supply the droxidopa active pharmaceutical agreement for our clinical trials and a contract with a third-party manufacturer to encapsulate, package and label our commercial product in anticipation of FDA approval, we currently have no contract for the commercial scale manufacture of our antifolates or I-3D compounds. We have contracted with one or more manufacturers to manufacture, supply, store and distribute drug supplies for our antifolate clinical trials. If any of our current product candidates or any other product candidates that we may develop or acquire in the future receive FDA approval, we will rely on one or more third-party contractors to manufacture our drugs. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

• We might not be able to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.

• Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the quality required to meet our clinical needs and commercial needs, if any, or limitations in their capacity could limit the timely availability of our product, which could alienate prescribing physicians and/or their patients if we cannot meet their demand for our drugs.

• Our contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.

• Our contract manufacturers might require financial assistance to increase their capacity levels required for our markets.

• Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Administration, or DEA, and corresponding state agencies to ensure strict compliance with good manufacturing practice and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards.

Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates or result in higher costs or deprive us of potential product revenue.

We have limited experience selling, marketing and distributing products and only limited internal capability to do so.

Although we have limited sales, marketing and distribution capabilities, we have been adding personnel in this area in anticipation of commercializing Northera in the United States. In addition to our Vice President of Sales and Marketing we have hired personnel with expertise in marketing and brand management, market research and sales. We currently anticipate continued expansion of our marketing and sales capabilities over the next several months in anticipation of commercializing Northera, including the hiring of employees and the negotiating of collaborative arrangements with third parties. However, we might not be successful in hiring or developing the necessary expertise and capacity or developing the necessary collaborative arrangements for the successful commercialization of Northera.

To commercialize droxidopa for any other indication or commercialize any other product candidate, we will need to enter into and maintain collaborative relationships or maintain and/or develop internal resources, which

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could require significant development, expenditures, management resources and time. We are currently pursuing a number of such collaborative relationships which might increase our risks in reliance upon outside resources.

Moreover, our limited experience might allow us to misjudge the potential of our product candidates, make decisions that prove less than optimal for pricing, marketing, selling or other aspects of commercialization, or provide imprecise or inaccurate financial guidance.

While the FDA has announced it might seek to remove midodrine from the market, midodrine is expected to continue to be available to patients until at least the end of 2014.

In August 2010, the FDA proposed removing midodrine from the market because required post-approval studies to verify the clinical benefit of the drug have not been satisfactorily completed by the manufacturer. In January 2011, the FDA opened a public docket to provide a forum to facilitate communication regarding the conduct of clinical trials needed to support the continued marketing authorization for midodrine. In December 2011, Shire reached an agreement with the FDA to conduct a new set of clinical trials to demonstrate the clinical benefit of midodrine. Accordingly, Shire indicated its intent to complete two additional clinical trials by the end of 2014. Should the FDA determine that Shire has failed to adhere to the terms or timeframes specified in this agreement, or the agreed upon trials fail to verify clinical benefit, Shire has agreed to have FDA withdraw the marketing approval for midodrine and Shire waives the right for a public hearing.

Midodrine is the only approved compound for orthostatic hypotension in the U.S. It is still not clear what action the FDA will take following the conclusions of the renewed clinical trials; however, the recent agreement with Shire is likely to ensure the availability of midodrine for at least two years. Furthermore, the FDA has never removed a drug under similar circumstances and we can provide no assurance that they will do so in the case of midodrine.

If we cannot compete successfully for market share against other drug companies, we might not achieve sufficient product revenue and our business will suffer.

The market for our antifolate product candidates is characterized by intense competition and rapid technological advances. The initial market for Northera, while smaller, has well established generic competition. Markets for other indications for droxidopa, such as fibromyalgia, are emerging with new and heavily marketed offerings. If Northera, droxidopa for other indications, our antifolates or other product candidates receive FDA approval, they will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing or future competing products might provide greater therapeutic convenience, efficacy or other benefits for a specific indication than our products or might offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we will not achieve sufficient product revenue and our business will suffer.

We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have compounds already approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in:

• developing drugs;

• undertaking preclinical testing and human clinical trials;

• obtaining FDA and other regulatory approvals of drugs;

• formulating and manufacturing drugs;

• launching, marketing and selling drugs; and

• post-marketing safety surveillance.

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Our ability to generate product revenue will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.

Our ability to commercialize our drugs, alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:

• government and health administration authorities;

• private health maintenance organizations and health insurers; and

• other healthcare payers.

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare and Medicaid, are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if a product candidate is approved by the FDA, insurance coverage might not be available and reimbursement levels might be inadequate to cover the cost of our drug. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for our product, once approved, market acceptance and our revenue could be reduced.

Specifically, not all physicians recognize a separate indication for symptomatic NOH and we cannot provide assurances that reimbursement will be approved by the relevant decision makers even if droxidopa receives market approval from the FDA or other regulatory authorities.

In addition, the U.S. and international healthcare industry is subject to changing political, economic and regulatory influences that may significantly affect the purchasing and pricing of pharmaceuticals. In March 2010, the U.S. Congress passed landmark healthcare legislation. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically the legislation may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of Northera or any future products. Members of the U.S. Congress and some state legislatures are seeking to overturn at least portions of the legislation and we expect they will continue to review and assess this legislation and possibly introduce alternative health care reform proposals. We cannot predict whether new proposals will be made or legislation adopted, when they may be adopted or what impact they may have on us if they are adopted. Cost-containment measures, whether instituted by healthcare providers or imposed by federal or state government agencies, could result in greater selectivity in the purchase of drugs. As a result, healthcare payers might challenge the price and cost effectiveness of our products. In addition, in many major markets outside the United States, pricing approval is required before sales of new drugs may commence. As a result, significant uncertainty exists as to the reimbursement status of approved products.

Developments by competitors might render our products or technologies obsolete or non-competitive.

Companies that currently sell both generic and proprietary compounds for the treatment of rheumatoid arthritis include, but are not limited to, Abbott Laboratories, Amgen, Pfizer, Sanofi-Aventis, Teva Pharmaceuticals, Boehringer Ingelheim Pharma, Hoffmann-La Roche, Johnson & Johnson, Bristol-Myers Squibb, Mylan Laboratories and UCB. Alternative technologies are being developed to treat rheumatoid arthritis by numerous companies including Pfizer, Rigel, Astra Zeneca and GSK which are in advanced clinical trials or filed with regulatory agencies. Companies that currently sell compounds used for the treatment of orthostatic hypotension include Mylan Pharmaceuticals, Impax Laboratories (Global Pharmaceuticals), Sandoz, Apotex, Upsher-Smith Laboratories and Pfizer. In addition, companies pursuing different but related fields represent substantial competition. Many of these organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, longer drug development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures or other collaborations.

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Our success, competitive position and future revenue will depend in part on our ability to obtain and maintain intellectual property, including patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties.

We do not know whether any of our pending patent applications or those patent applications that we may file or license in the future will result in the issuance of any patents. Moreover, we cannot predict the degree of patent protection that will be afforded by those patent applications that do result in issuance. Although we generally seek the broadest patent protection available for our proprietary compounds, we may not be able to obtain patent protection for the actual composition of any particular compound and may be limited to protecting a new method of use for the compound or otherwise restricted in our ability to prevent others from exploiting the compound. If our patent protection for any particular compound is limited to a particular method of use or indication such that, if a third party were to obtain approval of the compound for use in another indication, we could be subject to competition arising from that third party.

Moreover, our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated, rendered unenforceable or circumvented, any of which could limit our ability to stop competitors from marketing related products. In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar compounds or technologies. Furthermore, our competitors may independently develop similar technologies in a manner that does not infringe our patents or other intellectual property.

If a third party legally challenges our patents or other intellectual property rights that we own or license, we could lose certain of these rights. For example, third parties may challenge the validity of our U.S. or foreign patents through reexaminations, oppositions or other legal proceedings. If successful, a challenge to our patents or other intellectual property rights could deprive us of competitive advantages and permit our competitors to use our technology to develop similar products.

In addition, we do not anticipate having patent protection on droxidopa when and if it receives market approval by the FDA for NOH under the brand name Northera™. While the orphan drug designation for this compound by the FDA will provide seven years of market exclusivity, we will not be able to exclude other companies from manufacturing and/or selling this compound beyond that timeframe.

Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and commercialization efforts.

If a third party were to file a patent infringement suit against us, we could be forced to stop or delay research, development, manufacturing or sales of any infringing product in the country or countries covered by the patent infringed, unless we can obtain a license from the patent holder. Any necessary license may not be available on acceptable terms or at all, particularly if the third party is developing or marketing a product competitive with the infringing product. Even if we are able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. We also may be required to pay substantial damages to the patent holder in the event of an infringement. If we have supplied infringing products to third parties for marketing or have licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses they may sustain themselves as a result.

We may initiate patent litigation against third parties to protect or enforce our patent rights. Failure to protect our patents and other proprietary rights may materially harm our business, financial condition and results of operations.

Legal or administrative proceedings may be necessary to defend against claims of infringement or to enforce our intellectual property rights. If we become involved in any such proceeding, irrespective of the

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outcome, we may incur substantial costs, and the efforts of our technical and management personnel may be diverted, which could materially harm our business. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that disclosure of some of our confidential information could be compelled and the information compromised. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments that, if perceived as negative by securities analysts or investors, could have a substantial adverse effect on the trading price of our common stock.

Existing patents and proprietary rights could harm our competitive position.

Other entities may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import products or impair our competitive position. In addition, to the extent that a third party develops new technology that covers our products, we may be required to obtain licenses to that technology, which licenses might not be available or may not be available on commercially reasonable terms, if at all. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations.

Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Therefore, enforceability or scope of our patents in the United States or in foreign countries cannot be predicted with certainty, and, as a result, any patents that we own or license may not provide sufficient protection against competitors.

Some jurisdictions have laws that permit the government to force a patentee to grant a license to a third party for commercialization of a patented product if the government concludes that the product is not sufficiently developed or not meeting the health needs of the population. Such compulsory licensing laws are very rarely invoked outside of South America and Africa. In addition, a number of countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could materially diminish the value of the patent. Such compulsory licenses could be extended to include some of our product candidates, which may limit our potential revenue opportunities.

Because of the extensive time required for development, testing and regulatory review of a new drug, it is possible that any related patent may expire before any of our product candidates can be commercialized or remain in force for only a short period following commercialization. In either case, this would reduce any advantages of the patent.

If we are unable to satisfy our obligations under current and future license agreements, we could lose license rights which would adversely affect our business.

We license patent and/or certain other rights from DSP for droxidopa. Similarly, we are a party to a license agreement with Dr. M. Gopal Nair under which we license patent rights for our product candidate CH-4051 and other antifolates. We may enter into additional licenses in the future. Our existing licenses impose, and we expect future licenses will impose, various milestone payments, royalty payments and other obligations on us. If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business. If a licensor challenges our license position, our competitive position and business prospects could be harmed.

Our license agreement with DSP reserves rights to the licensor in Japan, Korea, China and Taiwan which preclude our commercialization of droxidopa in those markets. Our license agreement with Dr. Nair reserves rights to the licensor in India. Therefore, we will not commercialize our licensed antifolates in India.

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If we are unable to enforce trade secret protection and confidentiality agreements with our employees, our competitive position might be harmed.

Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents are unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, it is our policy to require all of our employees, consultants, advisors and contractors to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements might not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.

If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages and defend against litigation.

If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we might have to:

• obtain licenses, which might not be available on commercially reasonable terms, if at all;

• abandon an infringing drug candidate;

• redesign our products or processes to avoid infringement;

• stop using the subject matter claimed in the patents held by others;

• pay damages; or

• defend litigation or administrative proceedings, which might be costly whether we win or lose, and which could result in a substantial diversion of valuable management resources.

We might not successfully manage our growth.

We are a small, development stage company. Assuming FDA approval of Northera as well as approval of our other product candidates, our success will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and on our administrative, operational and financial resources. As of March 2, 2012, we had 49 full-time, permanent employees. We anticipate that we will need to identify, attract, train and retain other highly skilled personnel as we continue to develop our product candidates and commercialize Northera in the United States. In particular, we are currently in the process of recruiting approximately 85 sales representatives to address the market opportunity in the United States should our NDA for Northera be approved. Hiring for such personnel is competitive, and there can be no assurance that we will be able to retain our key employees or attract, assimilate or retain the qualified personnel necessary for the development of our business. If we are unable to manage our growth effectively, our business would be harmed.

We might be exposed to liability claims associated with the use of hazardous materials and chemicals.

Our research and development activities might involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures, and those of our partners, for using, storing, handling and disposing of these materials comply with federal, state, local and, where applicable, foreign laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could

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materially adversely affect our business, financial condition and results of operations. In addition, the laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products might require us to incur substantial compliance costs that could materially adversely affect our business, financial condition and results of operations.

We rely on key executive officers and scientific and medical advisors, and their knowledge of our business and technical expertise would be difficult to replace.

As a small, development stage, company, we are highly dependent on our executive officers, including particularly our Chief Executive Officer, Simon Pedder, Ph.D., and our principal scientific, regulatory, sales, marketing and medical officers and advisors. Dr. Pedder is the only executive officer whose employment with us is governed by an employment agreement, and the term of employment under that agreement expires on December 31, 2014. We do not have “key person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of any future customers and sales and diversion of management resources, which could adversely affect our operating results.

If we are unable to hire additional qualified personnel, our ability to grow our business will be harmed.

As a small, development stage company, we will need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing, distribution, administration and sales and marketing. We compete for qualified individuals with numerous pharmaceutical and biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel is critical to our success.

We might incur substantial liabilities and might be required to limit commercialization of our products in response to product liability lawsuits.

The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we might incur substantial liabilities or be required to limit commercialization of our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of our products. Although we carry clinical trial insurance, we might not be able to renew such insurance at a reasonable cost, if at all, or our intended collaborators may be unable to obtain such insurance at a reasonable cost, if at all. Even if our agreements with any future collaborators entitle us to indemnification against losses, that indemnification might not be available or adequate should any claim arise.

Risks Related to Our Securities

The trading volume of our common stock is limited and our investors may encounter difficulties selling significant quantities of our stock without adversely impacting the price at which they can sell.

Since listing with the NASDAQ in May of 2006, the trading volume for our stock has varied significantly from day to day and often the number of shares traded has been low. Any large transactions in our common stock might be difficult to conduct and may cause significant fluctuations in the price of our common stock.

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The prices at which shares of our common stock are traded will likely be volatile.

You should expect the prices at which our common stock is traded to be highly volatile. Since the commencement of NASDAQ trading in May 2006, the price has varied from a low of $1.09 to a high of $8.41. The expected volatile price of our stock will make it difficult to predict the value of your investment, to sell your shares at a profit at any given time, or to plan purchases and sales in advance. A variety of other factors might also affect the market price of our common stock. These include, but are not limited to:

• approval, failure to obtain approval or delays in obtaining approval for our NDA for Northera, currently under review by the FDA, or for any of our other product candidates;

• ability to out-license our products in the United States or elsewhere and the terms of such potential agreements;

• publicity regarding actual or potential clinical results relating to products under development by our competitors or us;

• delays or failures in initiating, completing or analyzing preclinical or clinical trials or the unsatisfactory design or results of these trials;

• pricing of our product candidates;

• success or delays in commercialization of our product candidates;

• market acceptance of our product candidates;

• approvals, delays in or rejection of regulatory approvals for our competitor’s products by U.S. or foreign regulators;

• announcements of technological innovations or new commercial products by our competitors or us;

• developments concerning proprietary rights, including patents;

• developments concerning our collaborations;

• regulatory developments in the United States and foreign countries;

• economic or other crises and other external factors;

• period-to-period fluctuations in our results of operations;

• changes in financial estimates by securities analysts; and

• sales of our common stock.

We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.

In addition, the stock market in general, and the market for pharmaceutical companies in particular, has experienced extreme price and volume fluctuations that might have been unrelated or disproportionate to the operating performance of individual companies. These broad market and industry factors might seriously harm the market price of our common stock, regardless of our operating performance.

We have never paid dividends and do not intend to pay cash dividends.

We currently anticipate that no cash dividends will be paid on our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance our future operations.

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If securities analysts downgrade our stock or cease coverage of us, the price of our stock could decline.

The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. Currently, six financial analysts publish reports about us and our business. We do not control these or any other analysts. Furthermore, there are many large, well-established, publicly traded companies active in our industry and market, which may mean that it is less likely that we will receive widespread analyst coverage. If any of the analysts who cover us downgrade our stock, our stock price would likely decline rapidly. If these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Substantial future sales of our common stock in the public market may depress our stock price and make it difficult for you to recover the full value of your investment in our shares of common stock.

As of March 2, 2012, we had 67,040,569 shares of common stock outstanding. Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. The market price of our common stock may decline if our common stockholders sell a large number of shares of our common stock in the public market, or the market perceives that such sales may occur. In addition, we have outstanding options and warrants to purchase an aggregate of 7,101,430 and 2,818,022 shares, respectively, of our common stock. If these options or warrants are exercised and the shares issued upon exercise are sold, the market price of our securities may also decline. These factors also could impair our ability to raise needed capital by depressing the price at which we could sell our securities.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We currently lease 13,979 square feet of office space in Charlotte, North Carolina. This lease, as amended in October 2010, currently requires monthly payments of approximately $29,000. The lease will expire in March 2016. The agreement calls for annual rent increases of 3%. A security deposit equal to two months’ rent per the initial lease agreement, or approximately $38,000, is being held in escrow by the landlord. While we believe that our current facilities are adequate to meet our needs to mid-2012, we are currently negotiating to acquire additional space in anticipation of the approval of our NDA for Northera.

ITEM  3. LEGAL PROCEEDINGS.

We are not subject to any material pending legal proceeding, nor are we aware of any threatened claims against us.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the National Association of Securities Dealers Automatic Quotation System (“NASDAQ”) National Market under the symbol “CHTP”. The following table sets forth the high and low prices of our common stock for the reported periods, as reported by NASDAQ. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.

	High		Low
Fiscal year ended December 31, 2010
First Quarter	$	4.19	$	2.39
Second Quarter	$	4.50	$	1.94
Third Quarter	$	7.00	$	2.73
Fourth Quarter	$	8.10	$	4.59
Fiscal year ended December 31, 2011
First Quarter	$	8.15	$	3.52
Second Quarter	$	5.34	$	3.83
Third Quarter	$	5.89	$	3.56
Fourth Quarter	$	5.63	$	3.37

As of March 2, 2012, the last sale price of our common stock on NASDAQ was $3.62 per share. As of March 2, 2011, there were approximately 3,400 stockholders of record.

We have neither paid nor declared dividends on our common stock since our inception and do not plan to pay dividends in the foreseeable future. Any earnings that we may realize will be reinvested to finance our operations.

The market prices for securities of pharmaceutical companies, including ours, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors, such as regulatory actions, clinical trial results, public concern as to the safety of drugs developed by us or others, fluctuations in our operating results, announcements of technological innovations or new therapeutic products by us or others, developments concerning agreements with collaborators, governmental regulation, developments in patent or other proprietary rights, future sales of substantial amounts of common stock by existing stockholders and general market conditions, can have an adverse effect on the market price of our common stock.

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ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth financial data with respect to us as of and for the five years ended December 31, 2011 and the period from April 3, 2002 (inception) through December 31, 2011. The selected financial data below should be read in conjunction with the audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7.

	Years ended December 31,															Period from April 3, 2002 (Inception) through December 31, 2011
	2011			2010			2009			2008			2007
	(In thousands, except share and per share data)
Statement of Operations Data:
Operating expenses:
Research and development	$	37,270		$	30,871		$	23,985		$	27,109		$	12,336		$	145,760
Sales and marketing		8,068			2,476			2,289			1,561			1,294			17,025
General and administrative		5,276			4,155			4,076			3,727			2,875			25,224
Total operating expenses		50,614			37,502			30,350			32,397			16,505			188,009
Operating loss		(50,614	)		(37,502	)		(30,350	)		(32,397	)		(16,505	)		(188,009	)
Interest income, net of expense		162			172			188			1,701			1,423			4,683
Other income (expense)		—			—			4,390			(4,390	)		—			—
Net loss	$	(50,452	)	$	(37,330	)	$	(25,772	)	$	(35,086	)	$	(15,082	)	$	(183,326	)
Net loss per basic and diluted share of common stock	$	(0.84	)	$	(0.91	)	$	(0.82	)	$	(1.17	)	$	(0.66	)
Weighted average number of basic and diluted common shares outstanding		60,136,326			41,184,623			31,549,739			30,027,031			22,936,780

	As of December 31,
	2011			2010			2009			2008			2007
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	41,106		$	47,593		$	22,295		$	21,533		$	34,076
Short-term investments, net		4,500			—			11,450			10,306			28,638
Working capital		33,336			34,970			12,671			20,260			57,910
Long-term investments, net		—			—			—			11,329			—
Total assets		46,903			48,374			34,349			44,130			63,163
Line of credit payable		—			—			11,466			7,277			—
Deficit accumulated during the development stage		(183,326	)		(132,873	)		(95,543	)		(69,771	)		(34,685	)
Total stockholders’ equity		33,665			35,188			12,852			24,548			57,967

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K. This discussion contains predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a development stage pharmaceutical company that seeks to acquire, develop and commercialize innovative products for the treatment of a variety of human diseases. Our strategy is to develop technologies that address important unmet medical needs or offer improved alternatives to current methods of treatment. Specifically, we are developing droxidopa, a novel therapeutic agent for the treatment of symptomatic neurogenic orthostatic hypotension, or NOH, in patients with primary autonomic failure, dopamine ß-hydroxylase, or DBH, deficiency and non-diabetic autonomic neuropathy. We are also evaluating the potential therapeutic applications of droxidopa in reducing the frequency of falls in patients with NOH associated with Parkinson’s disease, or PD, as well as other potentially norepinephrine related conditions and diseases including intradialytic hypotension, or IDH, fibromyalgia and adult attention deficit hyperactivity disorder. We are also developing pharmaceutical products for multiple autoimmune disorders, including rheumatoid arthritis, psoriasis, inflammatory bowel disease and cancer.

Northera™ (droxidopa), our most advanced investigational product candidate, is an orally-active synthetic precursor of norepinephrine being developed for the treatment of symptomatic NOH. In Japan, Northera has been approved since 1989 and is marketed by Dainippon Sumitomo Pharma Co., Ltd., or DSP, for the treatment of frozen gait and dizziness on standing in PD, orthostatic hypotension, syncope and dizziness on standing in multiple systems atrophy (Shy-Drager Syndrome) and familial amyloid polyneuropathy and symptoms of orthostatic hypotension in hemodialytic patients. During 2007, the FDA granted orphan drug status to Northera for the treatment of symptomatic NOH and the European Medicines Agency, or EMA, granted orphan medicinal product designation for the treatment of patients with Pure Autonomic Failure, or PAF, and patients with multiple system atrophy, or MSA.

In November 2011, the FDA accepted for filing our NDA seeking approval to market Northera in patients with primary autonomic failure, DBH deficiency and non-diabetic autonomic neuropathy that we submitted in September 2011. In addition, the FDA granted our request for a priority review of the NDA and, under PDUFA, the FDA’s goal is to review and act on the NDA by March 28, 2012. In addition, a meeting of the Cardiovascular and Renal Drugs Advisory Committee was held on February 23, 2012, as requested by the FDA, to discuss the Northera NDA. The committee recommended, in a 7 to 4 vote, that the FDA approve our NDA to market Northera in the United States. This recommendation is non-binding on the FDA.

The clinical portion of the NDA includes combined safety and efficacy data from our two completed Phase III efficacy 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 we complete a thorough QTc study of Northera 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 top-line data in the NDA and provided 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

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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. If approved, the FDA could request additional studies be completed post-approval or they could delay approval pending the completion of such studies.

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. 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 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.

We modified and separated Study 306 such that the first 51 patients evaluated in the unblinded interim analysis are considered Part A (Study 306A) while the remaining 62 patients already enrolled in the study at the time of the interim analysis but not unblinded as part of that analysis would form the basis for Part B (Study 306B). Based on the analysis of the unblinded interim data from Study 306A, we modified Study 306B, changing the primary endpoint to the change in patient-reported falls from baseline to end of study, to demonstrate an approximate 45% reduction in the rate of falls per patient, per week in patients with NOH associated with PD and plan to enroll a total of approximately 160 patients. Based on current estimates, we anticipate data from Study 306B will likely be available during the third quarter of 2012. In keeping with the FDA’s recommendations, we did not seek a falls claim in the initial labeling at the time we filed for approval of Northera for the treatment of symptomatic NOH, but we intend to continue an ongoing clinical evaluation of the effects of Northera in reducing the number of falls in patients with NOH associated with PD, including additional clinical trials as necessary, with the intent of pursuing future label expansion opportunities for Northera post-approval.

In December 2011, we announced that we had received a notice of allowance from the U.S. Patent and Trademark Office for our patent application “Threo-DOPS Controlled Release Formulation,” U.S. Patent Application No. 11/698,974. Upon issuance, the patent will expire no earlier than 2026. The newly allowed claims relate to certain oral, controlled release formulations of Northera that include an extended release component and an immediate release component. Although we are not currently seeking regulatory approval for such a controlled release formulation of Northera, if we were to do so, the patent would provide protection for the claimed formulation beyond the seven-year marketing exclusivity afforded by its orphan designation in the U.S. Also, in September 2011, we announced that we had been issued U.S. Patent No. 8,008,285 entitled “Droxidopa and pharmaceutical composition thereof for the treatment of fibromyalgia.” The claims of the patent are related to methods of reducing pain associated with fibromyalgia by administering droxidopa alone, or in combination with other specified medications.

In December 2011, we announced top-line results from our Phase II trial of droxidopa, alone and in combination with carbidopa, for the treatment of fibromyalgia. Top-line results of the study indicate a dose response with the highest dose of droxidopa, 600mg three times daily, demonstrating a 6.2-point average improvement from a baseline score of 23.00 on the Short Form McGill Questionnaire, or SF-MPQ, at the end of the nine-week treatment period, the study’s primary endpoint. This reflects a 3.2 unit improvement over placebo on the SF-MPQ total pain score. Although the study, conducted under approval from the United Kingdom’s Medicines and Healthcare Products Regulatory Agency, was not designed to demonstrate statistical significance given the limited number of patients per arm, results of the study show a mean change in pain, as measured by the visual analog scale, or VAS, of -1.64 for patients treated with droxidopa monotherapy compared to a mean change of -0.90 for placebo. Assessment using the Fibromyalgia Index Questionnaire, or FIQ, showed patients treated with droxidopa monotherapy demonstrated a mean change from baseline of -9.72 compared to -4.74 reported by patients in the placebo arm. Administration of droxidopa monotherapy proved more effective than droxidopa/carbidopa combination therapy in the study.

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In July 2011, we announced that an investigator-led Phase II study of droxidopa, in combination with carbidopa, for the treatment of adult attention deficit hyperactivity disorder, or ADHD, initiated in February 2010, had been completed. Preliminary results from this study suggest that droxidopa rapidly improved ADHD symptoms during open-label treatment and was well tolerated with no serious adverse events.

In October 2011, an investigator-led, Phase II study began to evaluate droxidopa for the treatment of orthostatic hypotension resulting from spinal cord injury.

In addition to droxidopa, we are currently developing a portfolio of molecules for the treatment of various autoimmune/inflammatory diseases. The most advanced platform is a portfolio of metabolically-inert antifolate molecules engineered to have potent anti-inflammatory and anti-tumor activity to treat a range of immunological disorders, including two clinical stage product candidates designated as CH-1504 and CH-4051. In March 2009, we announced positive results from the completed Phase II head-to-head clinical trial of CH-1504 for the treatment of rheumatoid arthritis, designed to compare the efficacy and tolerability of CH-1504 against methotrexate, or MTX, currently the leading antifolate treatment and standard of care for a broad range of abnormal cell proliferation diseases. Results of the study showed comparable American College of Rheumatology efficacy criteria, or ACR20/50/70 response rates, to patients treated with daily 0.25mg, 0.50mg and 1.0mg of CH-1504 against patients treated with a standard weekly 20mg oral dose of MTX. In addition, the efficacy of CH-1504 was associated with improved tolerability and reduced hepatotoxicity compared with MTX. In April 2009, we announced positive findings from our Phase I study of CH-4051, the L-isomer of CH-1504. Data from this single and multiple ascending dose study demonstrated that CH-4051 is safe and well tolerated up to a maximally tolerated dose of 7.5mg.

Based on these findings, in September 2010 we initiated a multinational, 12-week, double-blind Phase II trial designed to compare the efficacy and tolerability of CH-4051 against MTX in 250 patients with rheumatoid arthritis who experience an inadequate response to MTX treatment. The primary efficacy analysis will be conducted using the ACR hybrid score, an endpoint that combines a continuous scale of percentage improvement with the well-known ACR20/50/70. The trial was initiated with a staggered start wherein the first patients were randomized to receive either 0.3mg or 1.0mg of CH-4051 daily or 20mg MTX weekly in combination with a folate supplement. Enrollment in the high dose arms of the study was deferred until May 2011, when we announced that an independent Data Safety Monitoring Board had met to review patient safety data from this study and, finding no signals that precluded proceeding, recommended that each on-going arm of the study continue as planned and that enrollment be initiated in the 3.0mg dose groups of the trial.

In November 2011, we announced preliminary results from a planned unblinded, interim efficacy analysis for the lower dose patients. The analysis included unblinded data from the lower two of three doses of CH-4051 and half the patients enrolled into the MTX control arm. Preliminary results suggest a dose-dependent therapeutic response in which patients treated with the mid-range, or 1.0mg daily oral dose, of CH-4051 experienced similar efficacy to patients treated with a standard 20.0mg weekly dose of MTX. This response suggests that patients currently receiving triple the dose, or 3.0mg, of CH-4051 in the ongoing study may experience greater therapeutic benefits than patients treated with MTX. Full study results are currently expected to become available in the second quarter of 2012.

Complementing our autoimmune/inflammatory program is a second platform consisting of a portfolio of therapeutics targeting immune-mediated inflammatory disorders and transplantation, known as our I-3D portfolio. We currently have no work underway related to this portfolio.

Since inception we have focused primarily on organizing and staffing our company, negotiating in-licensing agreements with our partners, acquiring, developing and securing our proprietary technology, participating in regulatory discussions with the FDA, the EMA and other regulatory agencies, undertaking preclinical trials and clinical trials of our product candidates, and, more recently, preparing for the planned commercial launch in the United States of Northera in anticipation of regulatory approval. We are a development stage company and have

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generated no revenue since inception. We do not anticipate generating any product revenue until and unless we successfully obtain approval from the FDA or equivalent foreign regulatory bodies to begin selling Northera or any of our other pharmaceutical candidates although we could potentially generate revenue prior to any marketing approval by entering into strategic agreements including out-licensing, co-development or co-promotion of our drug candidates. Developing pharmaceutical products is a lengthy and expensive process. If we do not encounter unforeseen safety issues or regulatory or other delays during the course of developing Northera, we would anticipate receiving regulatory approval to market Northera late in the first quarter of 2012, at the earliest. Assuming FDA approval of Northera for marketing in the United States, we currently anticipate launching the product and having initial sales or royalty revenue from it in the second quarter of 2012. Currently, development and commercialization expenses are being funded with proceeds from equity financings completed in December 2004, February 2006, March 2007, November 2007, July 2009, March 2010, October 2010, February 2011 and January 2012 and, to a lesser extent, proceeds from the exercise of warrants and options. In addition, we received additional proceeds under a controlled equity offering for sales made during September 2010. Given our intent to move our products into additional clinical trials and expand our commercialization and marketing efforts for Northera, along with the uncertainty regarding the approval of Northera and potential product revenue should approval be obtained, our need to finance operating costs might continue. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but may also depend on our ability to finance the development and/or commercialization of the products.

Revenue and Cost of Revenue

We have not generated any revenue from licensing, milestones or product sales through December 31, 2011. We do not expect to generate product revenue until and unless we receive approval from the FDA or other regulatory authorities to market our product candidates. We may also decide to out license one or more of our drug product candidates and, if successful, we would anticipate revenue to be recorded from such a transaction. However, we might never be able to generate revenue or generate revenue sufficient to fund ongoing operations. Other than Northera, which, if approved by the FDA, might be launched in the second quarter of 2012, at the earliest, none of our other product candidates are expected to be commercially available until, at the earliest, 2015, if at all.

Research and Development

Research and development expenses consist primarily of costs associated with determining feasibility, licensing and preclinical and clinical testing of our licensed pharmaceutical candidates, including salaries and related personnel costs, fees paid to consultants and outside service providers for drug manufacture and development, certain legal expenses and other expenses. All of our major research and development projects subject us to drug development and regulatory risks, including specifically risks of delays and cost over-runs that could be material to our financial condition and results of operations. For certain programs, we might rely on collaborative partners or our ability to enter into collaborations on favorable terms in order to advance a product candidate and pay a portion of the research and development expenses. See “Item 1A. Risk Factors.” We expense our research and development costs as they are incurred. Research and development expenses, related to our major research and development projects, for the years ended December 31, 2011, 2010 and 2009 were approximately $37.3 million, $30.9 million and $24.0 million, respectively, and are detailed as follows:

	Years ended December 31,
(in thousands)	2011		2010		2009
Antifolates	$	7,350	$	6,100	$	2,300
Droxidopa		29,950		24,800		21,700
I-3D		—		—		—
	$	37,300	$	30,900	$	24,000

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Sales and Marketing

Selling and marketing expenses consist primarily of salaries and related expenses that support our business development activity, including programs related to our patents and intellectual property, promotional initiatives, activities related to the branding, pricing and market analysis of our pharmaceutical compounds and the establishment of our Northera sales force in the United States.

General and Administrative

General and administrative expenses focus on the support of administrative activities and consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses for such personnel, consulting and professional fees and other corporate expenses, including general legal and accounting activities, certain taxes and other government fees and facilities-related expenses.

Corporate History

Our operating company, Chelsea Therapeutics, Inc., or Chelsea Inc., was incorporate in Delaware in April 2002 under the name Aspen Therapeutics, Inc. Its name was changed in July 2004. In February 2005, we completed a merger with Ivory Capital Corporation, or Ivory, a publicly traded Colorado corporation, in which a wholly owned subsidiary of Ivory Capital was merged with and into Chelsea Inc. and Chelsea Inc. became a wholly owned subsidiary of Ivory. The merger resulted in a change of control of Ivory, with the former stockholders of Chelsea Inc. owning approximately 96.75% of the resulting entity, after assuming the conversion of all outstanding options and warrants. In addition, the terms of the merger provided that the sole officer and director of Ivory would be replaced by the officers and directors of Chelsea Inc. The transaction was accounted for as a reverse acquisition with Chelsea Inc. as the acquiring party and Ivory as the acquired party, in substance, a reorganization of Chelsea Inc. Accordingly, when we refer to our business and financial information relating to periods prior to the merger, we are referring to the business and financial information of Chelsea Inc. unless the context indicates otherwise. On July 28, 2005, Ivory merged with Chelsea Therapeutics International, Ltd., or Chelsea Ltd., with Chelsea Ltd. as the surviving corporation. As a result, Chelsea Ltd. is the public reporting company and is the 100% owner of Chelsea Inc., its operating subsidiary.

When we refer to business and financial information for periods between January 1, 2005 and July 28, 2005, we are referring to the business and financial information of Ivory. Except as noted, all share numbers included herein reflect the conversion of every nine shares of Ivory Capital Corporation common stock for one share of Chelsea Ltd. common stock that occurred in connection with our Delaware reincorporation on July 28, 2005.

Results of Operations

The tables below set forth, for the periods indicated, certain items in our consolidated statements of operations and other pertinent financial and operating data.

Comparison of Years ended December 31, 2011 and 2010

(in thousands, except percentages)	For the year ended December 31, 2011		For the year ended December 31, 2010			$ Increase			% Change
Research and development expense	$	37,270	$	30,871		$	6,399			21	%
Sales and marketing expense		8,068		2,476			5,592			226	%
General and administrative expense		5,276		4,155			1,121			27	%
Interest income		162		243			(81	)		-33	%
Interest expense		—		(70	)		70			-100	%

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Research and development expenses. In 2011, we continued to incur costs for Study 306A, Study 306B and our open-label extension study, Study 304. We also incurred expenses for a Phase II trial of our antifolate, CH-4051, in rheumatoid arthritis for which enrollment was initiated in September 2010. In 2010, we completed our second pivotal Phase III trial in NOH, Study 301, and initiated Study 306. Also, during 2011, we had costs for the preparation and filing of our NDA for Northera. Specifically, 2011 expenses included approximately $2.7 million related to the preparation and filing of our NDA, $5.2 million related to our ongoing Phase II trial of CH4051, $7.0 million related to NOH306 and $3.5 million for NOH extension studies. Additionally, we incurred costs during the period related to medical affairs activities related to the planned launch of Northera, including hiring, on a contract basis, a team of Medical Science Liaison professionals, generating period costs of $1.4 million. We also incurred expenses for the purchase and validation of active pharmaceutical ingredient to be used in the manufacture of commercial product, expenses for our Phase II trial of droxidopa in fibromyalgia and the costs of manufacturing, packaging, labeling and distributing clinical trial material. During 2010, primary expenditures were associated with our Phase III NOH studies, NOH extension studies, our Phase II trial of droxidopa in fibromyalgia and initial costs related to our Phase II trial of our antifolates in rheumatoid arthritis. Also contributing to our expenses in both periods were compensation and related costs. As a percentage of operating expenses, research and development costs were 74% for 2011 and 82% for 2010.

Droxidopa. From inception through December 31, 2011, we had spent approximately $103.8 million in research and development expenses on droxidopa. Based on our earlier discussions with the FDA, the pre-clinical and clinical programs required to complete and file our NDA seeking marketing approval of Northera (droxidopa) for the treatment of symptomatic NOH are essentially complete. Additional research and development costs for the Northera NOH core program through our anticipated PDUFA date at the end of March 2012 include our access and safety program, Study 304, which remains in place until participants have the opportunity to access commercial supplies of Northera; regulatory activity to support our NDA filing and advisory committee meeting; and commercial supply purchases and related drug manufacture (which are expensed prior to NDA approval). These expenses are expected to total approximately $3.6 million and do not include license fees of approximately $1.5 million to be paid if we receive approval of our NDA from the FDA, which would be capitalized as a long lived intangible asset. Additional droxidopa-related clinical research and development costs during 2012 are estimated at $9.6 million and include our ongoing Phase III study 306B, winding down of the access and safety programs for NOH patients, finalization of our Phase II study of droxidopa in fibromyalgia, continued development of a second source for drug supply, advancement of our once-daily formulation for NOH and initial activity on the renal impairment study previously requested by the FDA. In addition to this, we anticipate continuing costs for ongoing launch preparations related to medical information, medical affairs and commercial operations, including quality, compliance and related activities.

Antifolates. From inception through December 31, 2011, we had spent approximately $39.5 million in research and development expenses on our portfolio of antifolates. We currently intend to seek a partner to assist us in the development of our antifolates after the completion of our ongoing Phase II proof-of-concept study for CH-4051 in rheumatoid arthritis. We estimate that we will spend approximately $4.7 million on this program in 2012 and estimate preliminary data will be available in the second quarter of 2012 with final study activities completed in the third quarter of 2012. Assuming an approval for marketing, we currently estimate launch of this product and initial royalty revenue from it no sooner than 2015.

I-3D Portfolio. From inception through December 31, 2011, we had spent approximately $2.5 million in research and development expenses on the I-3D portfolio of compounds. We have conducted compound discovery work on the portfolio to try and identify one or more lead compounds. All of the work completed to date was performed before 2008 and we do not expect to incur significant additional expenses for these compounds until we select a partner or obtain additional financing.

Sales and marketing expenses. Although we had no formalized selling activities, during the year ended December 31, 2011 sales and marketing expenses increased significantly when compared to 2010. A significant component of this increase is related to increased compensation and related costs as we added personnel with the

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appropriate expertise in this area to support our planned commercialization of Northera. In addition, we also have begun to see the expected ramp up in the costs of developing and implementing our sales and marketing initiatives for Northera. Such costs include market research, sales force strategy and planning, planning for advertising and promotional campaigns, website development, sales operations planning, employee training programs and public relations. In addition, we also had increases in travel costs, promotional costs that include conference sponsorships and legal expenses related to our intellectual property. During 2010, primary expenditures were related to compensation and related expenses and legal expenses related to our intellectual property. We anticipate that significant growth in expenditures will continue for sales and marketing spending in 2012 as we complete preparation for and, assuming approval is received from the FDA, launch Northera in the United States. We currently expect such spending will be between $35 and $45 million, assuming we are able to launch Northera in 2012 and depending on the timing of FDA approval.

General and administrative expenses. During 2011, general and administrative expenses increased by approximately $1.1 million when compared to 2010. Contributing to this increase were increases in compensation and related costs, primarily for stock-based compensation, professional fees, including audit, tax and legal fees, rent expense, related to the expansion of our headquarters office space, financial printing, depreciation, taxes/government fees and transfer agent fees.

Interest income and interest expense. At December 31, 2011, we had cash and cash equivalents of $41.1 million and short-term investments of $4.5 million. The decrease in interest income is primarily related to the loss of interest income on auction rate securities, or ARS, investments that were fully liquidated by June 30, 2010 but that paid premium interest rates during the first six months of 2010 combined with continued softness in the interest rate market in the United States. Interest expense decreased as the line of credit associated with our investments in ARS held at UBS was fully paid on June 30, 2010.

Comparison of Years ended December 31, 2010 and 2009

(in thousands, except percentages)	For the year ended December 31, 2010			For the year ended December 31, 2009			$ Increase (Decrease)			% Change
Research and development expense	$	30,871		$	23,985		$	6,886			29	%
Sales and marketing expense		2,476			2,289			187			8	%
General and administrative expense		4,155			4,076			79			2	%
Interest income		243			337			(94	)		-28	%
Interest expense		(70	)		(149	)		79			-53	%
Other income (expense)		—			4,390			(4,390	)		-100	%

Research and development expenses. Based on the results of our meeting with the FDA in the fourth quarter of 2009, much of our efforts for Northera (droxidopa) during 2010 were focused on implementing the approved changes to and completing Study 301while also designing and initiating Study 306 upon the recommendation of the FDA. We incurred expenses associated with these and other NOH programs during 2010, along with costs related to our ongoing Phase II trial of droxidopa in fibromyalgia, costs related to the Phase II trial of our antifolates in rheumatoid arthritis, including licensing fees, and the costs of manufacturing, packaging and labeling appropriate clinical trial material for these trials. Other activities for droxidopa included manufacturing and formulation costs in support of the clinical efficacy and safety programs and activities related to validation of active pharmaceutical ingredient batches for potential commercialization. For 2009, we incurred significant expenses associated with our pivotal Phase III clinical and registration program for Northera in symptomatic NOH, along with costs related to our ongoing Phase II trial of droxidopa in fibromyalgia. In addition, we incurred costs related to our Phase II trial of CH-1504 and our Phase I trial of CH-4051, our antifolates. Also contributing to our expenses in both periods were compensation and related costs. As a percentage of operating expenses, research and development costs were 82% for the year ended December 31, 2010 compared with 79% for 2009.

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Sales and marketing expenses. Although we had no formalized selling activities, in 2010 we incurred increases in sales and marketing expenses for compensation and related expenses and promotional costs that include conference sponsorships offset by decreases in legal expenses related to our intellectual property and market research costs. During 2009, we incurred expenses of a similar nature, with more market research activity and less promotional activity than in 2010.

General and administrative expenses. During 2010, we incurred small increases in compensation and related costs, computer and software expenses and insurance expenses, offset by decreases in professional fees for legal and accounting services and travel expenses.

Interest income. At December 31, 2010, we had cash and cash equivalents of $47.6 million. We received interest income on ARS during the first six months of 2010 for ARS that were redeemed on June 30, 2010 and during 2009 for ARS that were redeemed in the second quarter of 2009 as well as those redeemed in 2010. The decrease reflects the loss of the premium interest rates for those investments. Interest expense decreased as the line of credit associated with our investments in ARS held at UBS was fully paid on June 30, 2010.

Other (income) expense. During the year ended December 31, 2009, we recorded a gain of $4.4 million on the recovery of previously recorded impairment losses for ARS that were redeemed at par and an increase in the fair value of our ARS Rights.

Liquidity and Capital Resources

From inception to December 31, 2011, we have incurred an aggregate net loss of approximately $183.3 million as a result of expenses similar in nature to those described above.

As of December 31, 2011, we had working capital of approximately $33.3 million including cash and cash equivalents of approximately $41.1 million, short-term investments of $4.5 million and current liabilities of $13.2 million. We have financed our operations primarily through sales of our stock and, to a much lesser extent, through the issuance of our common stock pursuant to option or warrant exercises. Cash on hand results primarily from previous financing activities offset by funds utilized for operating and investing activities. Our financing activities are more fully described in “Financings” below.

We invest our cash in a variety of financial instruments in order to preserve principal and liquidity while seeking reasonable returns. To limit market risk, investments are restricted to high quality instruments with relatively short maturities including, but not limited to, fully liquid interest-bearing money market accounts, commercial paper, certificates of deposit, money market funds and Treasury funds typically with a maturity of six months or less.

During 2010, we successfully redeemed, at full par value, all of our holdings in ARS. At January 1, 2010, we held short-term investments of $11.45 million, consisting of principal invested in certain ARS and the fair value of the related ARS rights. Our investments in these securities represented interests in collateralized debt obligations supported by pools of structured credit instruments consisting of student loans. None of the collateral for the ARS held by us included mortgage, credit card or insurance securitizations. During 2010, approximately $5.3 million of our investments in ARS were redeemed at full par value and on June 30, 2010, we exercised our right, as outlined under the settlement agreement with UBS, to sell the remaining ARS investments of approximately $6.2 million, along with our ARS rights, to UBS at par value. In addition, we repaid the related line of credit provided by UBS in conjunction with the settlement agreement with the proceeds from redemptions.

Per the terms of a settlement agreement executed in May 2009, all of our ARS holdings that were then classified as available-for-sale and had been purchased from Banc of America Securities, or BA, were redeemed at 100% of par value, or $11.6 million, in June 2009. In addition, BA also refunded to us the $0.4 million realized

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loss we incurred in January 2009 upon the sale of our $2.5 million par value ARS holding in Mississippi Higher Ed Assistance Corp. As such, we recorded a gain of approximately $4.4 million related to the recovery of the previously recorded other-than-temporary impairment for these ARS holdings.

General

We have incurred negative cash flows from operations since inception. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our commercialization and marketing activities for Northera and our efforts to secure opportunities for strategic alliances.

Notwithstanding our plan to launch Northera in 2012, our continued operations may depend on our ability to raise funds through various potential sources, such as equity and debt financing, the exercise of warrants or strategic alliances. Such strategic relationships or out-licensing arrangements might require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves. Such additional funds might not become available on acceptable terms, or at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs.

We believe that our capital resources available at December 31, 2011, when combined with net proceeds of approximately $22.1 million from our equity offering completed in January 2012 and our initial revenues projected on the planned launch of Northera in the United States, which we expect no sooner than the second quarter of 2012, along with a working capital line of credit, will be sufficient to meet our operating needs through 2012 and into 2013, including an increasing level of commercialization activity and expenses related to the anticipated market launch of Northera.

From inception through December 31, 2011 we had losses of $183.3 million. We had net losses of $50.5 million, $37.3 million and $25.8 million for the years ended December 31, 2011, 2010 and 2009, respectively, and we anticipate losses at least through 2012 unless we should successfully negotiate a strategic agreement earlier that might include out-licensing, co-development or co-promotion of one or more of our drug candidates. Actual losses will depend on a number of considerations including:

• the timing of FDA approval of our NDA for Northera, if at all;

• the pace of commercialization and marketing efforts for Northera;

• acceptance by the medical community for any approved products and demand for the products among patients;

• pricing for any approved products and decisions by payers, including private insurance carriers, government agencies and other healthcare payers concerning the coverage and reimbursement for such products;

• possible out-licensing of our product candidates;

• continuing discussions with regulatory agencies concerning the requirements for and design of our clinical trials and safety monitoring programs;

• the pace and success of development activities, including programs for droxidopa, antifolates and other product candidates;

• our ability to identify and recruit patients into our clinical trials at costs consistent with our current estimates;

• seeking regulatory approval for our various product candidates;

• the pace of development of new intellectual property for our existing product candidates;

• in-licensing and development of additional product candidates;

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• implementing additional internal systems and infrastructure; and

• hiring additional personnel.

Should we raise additional funds by selling shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs or curtail operations. As a result, our business, financial condition and results of operations would be materially harmed.

Financings

2012 Shelf Registration Statement

On February 8, 2012, the Company filed, with the Securities and Exchange Commission, or SEC, an amendment to its shelf registration statement on Form S-3 that was originally filed on January 26, 2012, under which the Company may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $100,000,000. Such registration statement, as amended, became effective as of February 9, 2012.

2011 Shelf Registration Statement

In January 2012, we raised gross proceeds of approximately $23.7 million through the sale of 4,989,275 shares of our common stock in a publicly-marketed offering. These shares were offered pursuant to our shelf registration statement, amended pursuant to Rule 462(b), as filed with the SEC, under which we could offer shares of common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $63,950,000. The registration statement, as amended, became effective as of January 19, 2011. In connection with this offering, we paid commissions and other offering-related costs of approximately $1.6 million, resulting in net proceeds of approximately $22.1 million.

In February 2011, we raised gross proceeds of approximately $40.3 million through the sale of 10,062,500 shares of our common stock in a publicly-marketed offering. These shares were offered pursuant to our 2011 shelf registration statement. In connection with this offering, we paid commissions and other offering-related costs of approximately $2.5 million, resulting in net proceeds of approximately $37.8 million.

There are no more securities available under the 2011 shelf registration statement.

2009 Shelf Registration Statement

In October 2010, we raised gross proceeds of approximately $40.3 million through the sale of 8,214,286 shares of common stock in a publicly-marketed offering pursuant to our shelf registration statement, as amended pursuant to Rule 462(b), as filed with the SEC under which we could offer shares of our common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $61,566,686. Such registration statement became effective as of August 20, 2009. In connection with this offering, we paid commissions and other offering-related costs of approximately $2.5 million.

In July 2010, we filed the required documents and became eligible to use an at-the-market common equity sales program for the sale of up to 3,000,000 shares of common stock pursuant to our 2009 shelf registration statement. In September 2010, we sold 634,500 shares of common stock under this program resulting in net proceeds, after expenses for the program, of approximately $2.9 million.

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On March 5, 2010, we raised gross proceeds of approximately $18.2 million through the sale of 6,700,000 shares of common stock plus warrants for the purchase of 2,345,000 shares of common stock. These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. These shares were offered pursuant to our 2009 shelf registration statement. In connection with this offering, we paid commissions and other offering-related costs of approximately $1.5 million.

There are no more securities available under the 2009 shelf registration statement.

2007 Shelf Registration Statement

On July 28, 2009, we raised gross proceeds of approximately $13.3 million through the sale of 3,325,000 shares of common stock. These shares were offered pursuant to our shelf registration statement filed with the SEC that became effective October 11, 2007, as amended pursuant to Rule 462(b), effective July 22, 2009, to increase the dollar amount of securities available for sale, as filed with the SEC under which we could offer shares of common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $62,218,060. In connection with the July 2009 offering, we received net proceeds, after deducting placement fees and offering expenses, of approximately $12.4 million.

On November 8, 2007, we raised gross proceeds of approximately $48.9 million through the sale of 7,388,172 shares of our common stock in a registered direct offering. These shares were offered pursuant to our 2007 shelf registration statement as filed with the SEC, under which we were able to offer shares of our common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $60.0 million, prior to its amendment. Such registration statement became effective as of October 11, 2007. In connection with this offering, we paid commissions and other offering-related costs of approximately $3.2 million.

There are no more securities available under the 2007 shelf registration statement.

Private Placements

On March 22, 2007, we raised gross proceeds of approximately $12.5 million through the private placement of 2,648,306 shares of our common stock plus warrants for the purchase of 794,492 shares of our common stock. The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. The warrants are redeemable at par value at our option in the event that the volume weighted-average closing price of our common stock is greater than $12.00 per share for any 20 consecutive trading days provided we give 60 business days’ written notice to the holders and simultaneously call all warrants on the same terms. Under the terms of the placement agreement, we agreed to and filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on August 7, 2007. In connection with this offering, we paid commissions and other offering-related costs of approximately $1.0 million in cash.

On February 13, 2006, we raised gross proceeds of approximately $21.5 million through the private placement of 7,166,666 shares of our common stock plus warrants for the purchase of 2,149,999 shares of our common stock. The aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares at $4.20 each and were exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. In addition, these warrants were redeemable at our option in the event that the volume weighted average closing bid price of our

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common stock for any 20 consecutive trading days is at least $9.00 per share. In connection with this offering, we paid commissions and other offering-related costs of approximately $1.6 million in cash and issued warrants to the placement agent for the purchase of 716,666 shares of our common stock with an exercise price of $3.30 per share, or 110% of the price of the shares sold in the offering and an aggregate fair value of approximately $0.7 million. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. Under the terms of the financing, we filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on March 29, 2006.

In December 2004, we raised gross proceeds of approximately $14.5 million through the private placement of 5,532,994 shares of our common stock. The amount raised included the conversion of a $1.7 million stockholder loan along with accrued interest, for which a total of 677,919 shares of common stock were issued. In connection with this offering, we paid commissions and other offering-related costs of approximately $1.0 million in cash and issued warrants to the placement agent for the purchase of 483,701 shares of our common stock with an aggregate fair value of approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance.

License Agreement and Development Agreement Obligations

In March 2004, we entered into a License Agreement with Dr. M. Gopal Nair, Ph.D., of the University of South Alabama College of Medicine, for rights to use, produce, distribute and market products derived from an invention by Dr. Nair, claimed in US Patent # 5,912,251, entitled “metabolically inert anti-inflammatory and antitumor antifolates”, designated by us as CH-1504 and related compounds. The license provides us exclusive, worldwide (excluding India) rights for these compounds.

In 2004, as consideration for these rights, we paid $150,000 and issued Dr. Nair and his designees 471,816 shares of common stock at an estimated aggregate value of $402. As additional consideration, we agreed to pay to Dr. Nair and or his designees: (1) royalties on the sales should any compounds be approved for commercial sale; (2) milestone payments, payable upon achievement of clinical milestones; and (3) payments to be made on specified anniversary dates, some of which were payable in equity, at our discretion. There are no minimum royalties under the agreement. We made milestone payments as required by the agreement of $100,000 each in March 2006 and 2005. In April 2007, we issued 26,643 shares of our common stock, subject to trading restrictions, at a value of approximately $5.63 per share, in settlement of the $150,000 annual milestone payment for 2007. In March 2008, we made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. In April 2008, we issued 30,612 shares of common stock, subject to trading restrictions, at a value of approximately $4.90 per share, in settlement of the 2008 anniversary milestone payment of $150,000. In April 2009, we made the 2009 anniversary milestone payment of $150,000. In October 2010, we made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. We are also obligated to make future potential milestone payments based on the achievement of specific development and regulatory approval milestones. Based on our current development plans for compounds licensed under this agreement, approximately $1.5 million of payments may become due if specific milestones are achieved, subject to our right to terminate the license agreement. In addition, should we enter into an out-licensing agreement, such payments could be offset by revenue received from the sub-licensee.

The license agreement includes certain other covenants, which require us to, among other things, maintain and prosecute patents related to the license; use commercially reasonable best efforts to bring the licensed product to market as soon as reasonably practicable and continue active, diligent marketing efforts; and prepare and provide to the licensor certain reports concerning our development and commercialization efforts. In the event we fail to carry out our responsibilities under the license agreement, the licensors may terminate the license. We may elect to abandon the maintenance and prosecution of any patent applications or issued patents and we retain the right to terminate the license agreement in whole or as to any portion by providing written notice of such intentions to the licensor. The license agreement may also be terminated in the event we fail to

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make a scheduled milestone or royalty payment, we otherwise materially breach the license agreement, or if we become involved in a bankruptcy, insolvency or similar proceeding, provided that we are entitled to notice of such intention to terminate and an opportunity to cure. Regardless, the license agreement shall expire concurrent with the date of the last to expire claim contained in the patent rights.

In May 2006, we entered into an agreement with Dainippon Sumitomo Pharma Co., Ltd., or DSP, for a worldwide, exclusive, sub-licensable license and rights to certain intellectual property and proprietary information relating to droxidopa including, but not limited to all information, formulations, materials, data, drawings, sketches, designs, testing and test results, records and regulatory documentation. As consideration for these rights, we paid DSP $100,000 and issued 63,131 shares of our common stock, with a value of approximately $4.35 per share, or $274,621. As additional consideration, we agreed to pay DSP and or its designees: (1) royalties on the sales should any compound be approved for commercial sale; and (2) milestone payments, payable upon achievement of milestones as defined in the agreement. In January 2007, we received notification that the FDA had granted orphan drug designation for droxidopa for the treatment of symptomatic neurogenic orthostatic hypotension. Based on the terms of the DSP agreement, the granting of orphan drug designation for droxidopa triggered a milestone payment to DSP of $250,000. We made such payment in February 2007. In February 2008, we made a milestone payment under the agreement of $500,000 related to patient dosing in a Phase III study. In September 2011, we filed our NDA with the FDA seeking approval to market Northera in the United States, triggering a milestone payment to DSP of $750,000. We made such payment in December 2011. At December 31, 2011, remaining potential future milestone payments, subject to our right to terminate the license agreement, totaled $2.5 million.

Subsequent to execution of the agreement, we agreed that DSP would initiate, and we would fund, activities focused on modifying the manufacturing capabilities of DSP in order to expand capacity and comply with cGMP regulations and all existing manufacturing requirements of the FDA. Based on work performed by DSP as of December 31, 2011, we had recorded expense of approximately $3.1 million and had a remaining liability of approximately $60,000 at December 31, 2011.

In May 2006, we entered into a development and commercialization agreement with Active Biotech AB to co-develop and commercialize the I-3D portfolio of orally active, dihydroorotate dehydrogenase (DHODH) inhibiting compounds for the treatment of autoimmune diseases and transplant rejection. Under the terms of the development agreement, an initial payment of $1.0 million was made to Active Biotech during 2006 with such funds utilized to cover the initial costs of research and development efforts jointly approved by both parties. At December 31, 2006, we had expensed the entire $1.0 million payment. At December 31, 2007, we had expensed cumulative costs of $1.0 million under the program, in excess of the initial payment of $1.0 million, related to costs of research and development. During 2008, we ceased joint discovery efforts with Active Biotech on this portfolio and, accordingly, recorded no costs related to this program during 2011, 2010 or 2009. In April 2008, we entered into a termination and assignment agreement with Active Biotech, whereby Active Biotech discontinued its participation in the I-3D co-development program and assigned its entire right, title and interest in the portfolio to us in exchange for royalties on future sales. The termination agreement also eliminated our obligation related to payment of potential future development milestones under the development agreement.

Current and Future Financing Needs

We have incurred negative cash flow from operations since inception. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our research and discovery efforts and our marketing and branding initiatives. Based on capital resources available at December 31, 2011, proceeds of approximately $22.1 million from the January 2012 stock offering, projected initial revenues from the planned U.S. launch of Northera, expected no sooner than the second quarter of 2012, and a planned working capital line of credit, we believe that we have sufficient capital resources to meet our operating needs through 2012 and into 2013, including an increasing level of commercialization activity.

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Potential sources of additional liquidity include strategic relationships, out-licensing of our products, public or private sales of equity or debt, the exercise of warrants by our warrant holders and other sources. We might seek to access the public or private equity markets again when and if conditions are favorable However, it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we might be unable to carry out our business plan. As a result, we might have to significantly delay certain activities or limit our operations and our business, financial condition and results of operations would be materially harmed.

Off-Balance Sheet Arrangements

We do not have any unconsolidated entities, and accordingly, we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

Contractual Obligations and Commitments

As of December 31, 2011, we have known contractual obligations and commitments of approximately $22.1 million, primarily related to contracted research and development activities and contracted commercialization activities in anticipation of the launch of Northera in 2012. To facilitate an understanding of our contractual obligations and commercial commitments, the following data is provided as of December 31, 2011:

	Payments due by period
Category	Total		< 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease obligations	$	1,612,476	$	370,959	$	776,303	$	465,214	$	—
Purchase obligations		20,491,462		20,113,002		303,461		75,000		—
Total	$	22,103,938	$	20,483,960	$	1,079,764	$	540,214	$	—

We have also entered into certain other agreements that, based on our development and commercialization plans as of December 31, 2011, might require us to make contingent milestone payments of up to approximately $4 million over the life of the agreements upon the achievement of certain clinical or commercial milestones. Such future payments are subject to our right to terminate the agreements. In the event that the milestones are not achieved, we elect not to pursue further testing of the drug candidate or we terminate such agreements, we will have no further obligations under the agreements. The uncertainty relating to the timing and occurrence of the commitments described prevents us from including them in the table above.

In addition, in October 2011, we committed to the purchase of additional active pharmaceutical ingredient from DSP to be used in the production of commercial inventory in preparation for the market launch of Northera in the United States. The value of this obligation is approximately $7.2 million. A small initial shipment of this material was delivered in the first quarter of 2012. Although the remainder of this material could be shipped at any time within a two-year period following the completion of its manufacture, it is not anticipated to be shipped prior to the commercial launch of Northera in the United States.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted

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in the United States of America. Our significant accounting policies are more fully described in Note 1 to the consolidated financial statements included in this Annual Report on Form 10-K. The following accounting policies are critical in fully understanding and evaluating our reported financial results.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments. Management bases estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results might differ from these estimates under different assumptions or conditions.

Research and Development

Research and development expenditures are expensed as incurred. We often contract with third parties to facilitate, coordinate and perform agreed upon research and development activities. To ensure that research and development costs are expensed as incurred, we measure expense based on work performed for the underlying contract, typically utilizing a percentage-of-completion approach, and record prepaid assets or accrue expenses on a monthly basis for such activities based on the measurement of liability from expense recognition and the receipt of invoices.

These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. In the event that we prepay fees for future milestones, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most fees are incurred throughout the contract period and are expensed based on their percentage of completion at a particular date.

These contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs including shipping and printing fees. Because these fees are incurred at various times during the contract term and they are used throughout the contract term, we record a monthly expense allocation to recognize the fees during the contract period. Fees incurred to set up the clinical trial are expensed during the setup period.

We have contracted with a third-party to manufacture commercial quantities of Northera prior to the date we anticipate that Northera will receive final regulatory marketing approval and might perform similar activities with other product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. As such, until final approval to market any our product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development.

Costs related to the acquisition of technology rights and patents for which development work is still in process are expensed as incurred and considered a component of research and development costs.

Accounting for Stock-Based Compensation

We account for our stock options utilizing the fair value based method of accounting for stock options or similar equity instruments. In determining the fair value of the equity instrument, we consider, among other factors, (i) the risk-free interest rate, (ii) the expected life of the options granted, (iii) the anticipated dividend yield, (iv) the estimated future volatility of the underlying shares and (v) anticipated future forfeitures. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a

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term consistent with the expected life of our awards. We estimate the expected life of the options granted based on anticipated exercises in future periods assuming the success of our business model as currently forecasted. The expected dividends reflect our current and expected future policy for dividends on our common stock. To determine the expected stock price volatility for our stock options, we analyze the historical volatility of our stock price over a period equal to the expected life of the options. We plan to continue to analyze the expected stock price volatility and expected term assumption at each grant date. Given our low historical rate of attrition and the senior nature of the roles for a significant portion of our employees, beginning in 2011 we estimated that our rate of anticipated future forfeitures will be 3% or less. In prior periods, our rate of forfeiture was immaterial to the recognition of compensation expense for options. Our results of operations include non-cash compensation expense as a result of the issuance of stock option grants utilizing this method. We expect to record additional non-cash compensation expense in the future, which might be significant. Due to the limited amount of historical data available to us, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We invest our cash in a variety of financial instruments in order to preserve principal and liquidity while maximizing returns and we do not invest in financial instruments or their derivatives for trading or speculative purposes. To minimize the exposure due to adverse shifts in interest rates, we maintain investments of shorter maturities. Our investment guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting our investments to high quality debt instruments with relatively short maturities. A portion of our cash is maintained in non-interest bearing accounts at federally insured financial institutions that, under the Transaction Account Guarantee Program of the Federal Deposit Insurance Corporation, or FDIC, are fully insured until December 31, 2012. In addition, we maintained and continue to maintain funds on deposit in commercial accounts that include non-interest bearing commercial checking accounts, fully liquid interest-bearing money market accounts, certificates of deposit, or CDs, money market funds and Treasury funds typically with maturities of six months or less. Investments in CDs are made through the Certificate of Deposit Account Registry Service, or CDARS^®, through a single CDARS Network member. When a large deposit is made, the CDARS network member uses the CDARS service to place funds into CDs issued by other members of the CDARS Network. Investments occur in increments at or below the standard FDIC insurance maximum ($250,000) at each participating member institution so that both principal and interest are eligible for FDIC insurance. In January 2012, we redeemed the last of our holdings in the CDARS program and currently have no plans to reinvest funds into the program. All deposits and investments to date have been made in U. S. dollars and, accordingly, have no exposure to foreign currency rate fluctuations on these investments.

Our interest income is sensitive to changes in the general level of interest rates in the United States, particularly since our investments are and will be in short-term investments. Currently, the returns on such liquid, short-term investments are at historic lows. Accordingly, we estimate that any sensitivity experienced due to fluctuations of interest rates in the United States for such investments would have no material impact on our consolidated financial position or results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of the financial statements filed herewith is found on page 73.

(b) The unaudited quarterly financial data for the two-year period ended December 31, 2011 is as follows:

	Year ended December 31, 2010
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Operating expenses	$	6,266,607		$	9,990,867		$	8,803,675		$	12,441,414
Loss from operations		(6,266,607	)		(9,990,867	)		(8,803,675	)		(12,441,414	)
Other income (expense)		34,598			66,542			16,948			54,405
Net loss		(6,232,009	)		(9,924,325	)		(8,786,727	)		(12,387,009	)
Basic and diluted net loss per share (a)		(0.18	)		(0.25	)		(0.22	)		(0.25	)
	Year ended December 31, 2011
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Operating expenses	$	13,902,789		$	13,322,703		$	10,899,460		$	12,489,041
Loss from operations		(13,902,789	)		(13,322,703	)		(10,899,460	)		(12,489,041	)
Other income (expense)		34,582			51,316			45,222			30,536
Net loss		(13,868,207	)		(13,271,387	)		(10,854,238	)		(12,458,333	)
Basic and diluted net loss per share (a)		(0.25	)		(0.21	)		(0.18	)		(0.20	)

(a) Basic and diluted net loss per share for each of the quarters presented above is based on the respective weighted average number of common shares for the quarters. As such, the sum of the quarters may not necessarily be equal to the full year loss per share amount. Basic and diluted net loss per share are identical since potentially dilutive securities are excluded from the calculations, as the effect would be anti-dilutive for all periods presented.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, are designed only to provide reasonable assurance that they will meet their objectives that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-15. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2011.

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Changes in internal control over financial reporting

Management has determined that, as of December 31, 2011, there were no changes in our internal control over financial reporting that occurred during our fiscal quarter then ended that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework and the Guidance for Smaller Public Companies as published by COSO in June 2006. Based on that assessment, management believes that we maintained effective internal control over financial reporting as of December 31, 2011, based on those criteria.

Ernst & Young LLP, our independent registered public accounting firm, which has audited the financial statements included in Part IV, Item 15 of this report, has also audited our internal control over financial reporting as of December 31, 2011, as stated in their report, which is included below.

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Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders of

Chelsea Therapeutics International, Ltd. and Subsidiary

We have audited Chelsea Therapeutics International, Ltd. and Subsidiary’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Chelsea Therapeutics International, Ltd. and Subsidiary’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Chelsea Therapeutics International, Ltd. and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chelsea Therapeutics International, Ltd. and Subsidiary (a development stage company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011, and for the period from April 3, 2002 (inception) through December 31, 2011 of Chelsea Therapeutics International, Ltd. and Subsidiary and our report dated March 7, 2012 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

Raleigh, North Carolina

March 7, 2012

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ITEM 9B. OTHER INFORMATION.

On March 2, 2012, we entered into an employment agreement with our current President and Chief Executive Officer, Dr. Simon Pedder. The new employment agreement replaces the agreement under which Dr. Pedder had been serving in the same capacity and which was set to expire on May 1, 2012. The prior agreement was filed on May 7, 2009 with the Securities and Exchange Commission as Exhibit 10.17 to our Current Report on Form 8-K.

The new employment agreement is substantially similar to the prior agreement with the following material changes:

• Dr. Pedder’s base annual salary was increased to $491,000, an increase of $16,600 over his salary in effect immediately prior to the effectiveness of the new agreement;

• Dr. Pedder is eligible for an annual incentive bonus of up to 50% of his base salary upon achievement of corporate goals, which can be increased to up to 75% of his annual salary if corporate goals are exceeded or for exemplary performance. Under the prior agreement, Dr. Pedder was eligible for an incentive bonus of 45% of his salary, which could be increased to up to 67.5%;

• Dr. Pedder’s vacation compensation was increased to five weeks, an increase of one week; and

• In the event of a “change of control” (as defined in the agreement), Dr. Pedder will receive severance only if, following the change of control, we terminate him without “cause” (as defined in the agreement) or he terminates the agreement for “good reason” (as defined in the agreement).

The new agreement is effective as of January 1, 2012, and as with the prior agreement, the new agreement has a term of three years. The term may be extended for additional one year periods if we and Dr. Pedder agree. If either we or Dr. Pedder wish to terminate the agreement, the party wishing to terminate must provide at least 90 days prior written notice.

If Dr. Pedder’s employment terminates as a result of his death or disability, we will pay him or his estate his base salary for a period of one year following the date of termination and any earned but unpaid incentive bonus. If Dr. Pedder’s employment is terminated by us for “cause,” we will pay him his then base salary through the date of termination. If his employment is terminated by us other than for “cause” or by him for “good reason”, including following a change of control, then subject to him executing a general release of any employment-related claims in our favor, we will pay him his base salary until the end of the term or for a period of one year after termination, whichever is longer, and any earned but unpaid incentive bonus and will also pay any excess COBRA premiums (to the extent that those premiums exceed his premiums as an active employee) for a period of 12 months after termination. In addition, (i) all of his stock options will vest in full as of the date of termination and (ii) for all stock options granted during the term of the agreement, Dr. Pedder will have 180 days to exercise such options after the date of termination, provided that the exercise date cannot exceed the option’s original termination date. Notwithstanding the above and unless otherwise agreed, if Dr. Pedder’s employment is terminated by us within 90 days of the occurrence of a change of control and on the date of the change of control the fair market value of our common stock, in the aggregate, as reported by NASDAQ Capital Markets or otherwise as determined in good faith by our board of directors on the date of the change of control, is less than $50,000,000, then we will pay Dr. Pedder his base salary and the excess COBRA premiums until the end of the term or for a period of one year following his termination, whichever is shorter. In addition, all of his stock options will vest in full as of the date of termination. These provisions are similar to those in the prior agreement.

As in the prior agreement, Dr. Pedder also agreed to non-compete and non-solicitation covenants during the course of and following termination of his employment.

The description of the employment agreement set forth above is not complete and is qualified in its entirety by reference to the agreement, which is attached as Exhibit 10.6 to this Report and is incorporated by reference.

Dr. Pedder has served as Chelsea’s President and Chief Executive Officer since April 2004. Except for the new employment agreement, the only transactions between us and Dr. Pedder are his prior employment agreements. There are no family relationships between Dr. Pedder and any of our directors or executive officers.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Incorporated by reference from the information under the headings “Proposal One – Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement for the 2012 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this report relates.

The information required by Item 10 with respect to identification of our executive officers has been included in Item 1 of this Form 10-K in reliance on General Instruction G of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this report with management and, based on that review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this report.

The Compensation Committee:
	Kevan Clemens, Chair
	Roger Stoll
	Michael Weiser

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee serves or in the past has served as a member of another entity’s board of directors or compensation committee, which entity has one or more executive officers serving as a member of our Board or Compensation Committee.

Compensation Discussion and Analysis

Compensation Objectives

We refer to our Chief Executive Officer, our Chief Financial Officer, and our other most highly compensated executive officers as our “named executive officers.” For all named executive officers, compensation is intended to be performance-based. Our Compensation Committee believes that compensation paid to executive officers should be closely aligned with our performance on both a short-term and long-term basis to create value for stockholders, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success.

In establishing compensation for named executive officers, the following are the Compensation Committee’s objectives:

• Attract and retain individuals of superior ability and managerial talent;

• Ensure officer compensation is aligned with our corporate strategies, business objectives and the long-term interests of our stockholders; and

• Enhance the officers’ incentive to increase our stock price and maximize stockholder value, as well as promote retention of key people, by providing a portion of total compensation for management in the form of direct ownership in us through stock options.

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To achieve these objectives, our overall compensation program aims to pay our named executive officers competitively, consistent with our success and their contribution to that success. To accomplish this we rely on programs that provide compensation in the form of both cash and equity. Although our Compensation Committee has not adopted any formal guidelines for allocating total compensation between cash and equity, the Compensation Committee reviews the allocation of compensation of several biopharmaceutical companies that are similarly situated to us with respect to size, product pipeline and development activities to help its determination. The Compensation Committee also considers the balance between providing short-term incentives and long-term parallel investment with stockholders to align the interests of management with stockholders.

Our stockholders approved by a significant majority at our 2011 annual meeting of stockholders the non-binding advisory proposal on our executive compensation for fiscal 2010. As a result of this approval, the Compensation Committee did not believe there were any stockholder-related concerns regarding our executive compensation.

Determination of Compensation Awards

The Compensation Committee has the primary authority to determine and recommend to our Board of Directors the compensation awards available to our named executive officers other than Dr. Simon Pedder, our Chief Executive Officer. To aid the Compensation Committee in making its determination, Dr. Pedder provides recommendations annually to the Compensation Committee regarding the compensation of all named executive officers other than himself. Each named executive officer, in turn, participates in an annual performance review for goals and objectives with Dr. Pedder and the Compensation Committee to provide input about their contributions to our business for the period being assessed. Named executive officers do not participate in salary or stock option discussions. The Compensation Committee, subject to board approval, has the authority to determine the compensation of Dr. Pedder. The performance of each of our named executive officers is reviewed annually by the Compensation Committee.

The Compensation Committee has the authority pursuant to its charter to retain the services of third-party executive compensation specialists from time to time, as it sees fit, in connection with the establishment of cash and equity compensation and related policies. Pursuant to this authority, during 2011, the Compensation Committee determined to retain an independent third party compensation committee, Pearl Meyer & Partners, to assist in the establishment of a list of comparable companies and to conduct an initial review of our compensation practices. The focus of the review was to provide context for compensation decisions for 2012 and beyond, especially to assist in the process of assessing what changes might be appropriate as part of our expected transformation from a development stage company to a company with commercial revenues as a result of the anticipated launch in 2012 of Northera™ (droxidopa). The Compensation Committee expects to continue its assessment process in 2012, both before and after the anticipated launch of Northera.

The Compensation Committee has not delegated any of its functions to others in determining executive and/or director compensation and, other than as described above, has not engaged any other consultants with respect to executive and/or director compensation matters.

Compensation Benchmarking and Peer Group

We conduct an annual benchmark review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our named executive officers. In addition, our Compensation Committee has historically taken into account:

• input from other independent members of our Board of Directors;

• in late 2011, the information and advice provided by our third-party compensation consultant in setting 2012 compensation policies;

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• survey information on compensation in our industry which we purchase as appropriate; and

• publicly available data relating to the compensation practices and policies of other companies within and outside our industry.

The Compensation Committee believes that it is important when making its compensation decisions to be informed as to the current practices of comparable, publicly-held companies. To that end, we benchmark our executive compensation against the compensation paid by several biopharmaceutical companies that are similarly situated to us with respect to size, product pipeline and development activities. Prior to 2011, we assembled this group of comparable companies on our own and selected companies against which to measure our compensation practices in an informal manner and did not establish a definitive group of peer companies against which we measured ourselves. The companies we selected at any time depended on the data that was available to us, publically or otherwise, at the time we reviewed our compensation practices. In 2011, our independent compensation consultant, with the input of the Compensation Committee, developed a peer group of comparable companies. While benchmarking may not always be appropriate as a stand-alone tool for setting compensation due to the aspects of our business and objectives that may be unique to us, we generally believe that gathering this information is an important part of our compensation-related decision-making process.

We recognize that to attract, retain and motivate key individuals, such as our named executive officers, the Compensation Committee may determine that it is in our best interests to negotiate total compensation packages with our executive management that may deviate from the general principle of targeting total compensation at the median level for the peer group. Actual pay for each named executive officer is determined around this structure, driven by the performance of the executive over time, as well as our annual performance.

Elements of Compensation

Base Salary

Base salaries for our named executive officers are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by other companies for similar positions within our industry, which for 2012 was based on the peer group developed by our independent compensation consultant. Base salaries are reviewed annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. Based upon the annual reviews of our named executive officers during 2011, the Compensation Committee approved the following base salary increases, effective January 1, 2012:

			Salary Adjustment
Name	2011 Salary ($)		($)		(%)			2012 Salary ($)
Simon Pedder	$	474,400		16,600		3.5	%		491,000
J. Nick Riehle	$	221,300		7,700		3.5	%		229,000
L. Arthur Hewitt	$	261,600		9,200		3.5	%		270,800
Keith W. Schmidt	$	229,500		8,000		3.5	%		237,500
Joseph G. Oliveto	$	232,700		8,100		3.5	%		240,800
William D. Schwieterman	$	334,800		11,700		3.5	%		346,500
Michael J. Roberts	$	206,300		7,200		3.5	%		213,500

Performance-Based Compensation and Special Bonuses

We have a well-documented and structured annual incentive bonus program to reward named executive officers, as well as other employees, based on our performance and the individual’s contribution to that performance. Pursuant to our annual incentive bonus program, named executive officers are eligible for bonuses to be paid annually in cash, typically early in our first quarter, as was the case this year, based on the prior year’s performance. The criteria used to determine the bonus for Dr. Pedder is based wholly on corporate goals

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established by the Compensation Committee. The criteria used to determine the bonus amounts for our other named executive officers includes the corporate goals as well as individual goals established by the Compensation Committee with the input of Dr. Pedder. The Compensation Committee believes that the payment of the annual incentive bonus in cash provides incentives necessary to retain and motivate our named executive officers and reward them for short-term company performance.

The corporate and individual goals established by the Compensation Committee for evaluating our performance and the performance of our named executive officers include several strategic and financial indicators which the Compensation Committee considers to be fair drivers of stockholder value creation. For 2011, our corporate and individual goals fell generally in the following categories: reaching certain regulatory, development, commercialization and partnering milestones, achieving or maintaining certain financial criteria (for example, stock price performance) and compliance with our 2011 budget. The corporate and individual goals for 2012 are similar in nature to those for 2011, although there is significant additional focus related to commercialization and revenue milestones related to the anticipated launch of Northera.

While using general criteria to evaluate performance, we do rely on formulaic determination of the annual bonus amounts. Under the annual incentive bonus program and as provided in his employment agreement, based upon the performance criteria set forth above, Dr. Pedder was eligible to earn a cash bonus targeted at 45% of his base salary during 2011, while the remaining named executive officers were eligible to earn a cash bonus targeted at 20% of their respective base salaries. Based upon our performance and the performance of the individual named executive officers, each named executive officer can earn up to 150% of the specified target bonus if all corporate and individual goals are exceeded beyond the highest specified threshold. If none of the corporate or individual goals are achieved at the minimum threshold, the named executive officer would not be eligible to receive any bonus under our annual incentive bonus program. The goals are reviewed periodically during the course of the year to evaluate their ongoing relevance and the Compensation Committee retains discretion to increase or decrease bonuses based on individual or company-wide circumstances not addressed or contemplated at the time when the performance goals were established or subsequently reviewed.

For 2011, the Compensation Committee determined the performance by our named executive officers against their goals to be generally positive with the primary and significant exception of our stock price, which failed to meet even our minimum criteria necessary to contribute toward executive bonuses. In other areas, the Compensation Committee determined that the company and our named executive officers made significant and important progress. The most significant goal for 2011 was the submission and acceptance of our NDA for Northera. With the submission of the NDA in September 2011 and FDA acceptance in November 2011, this goal was assessed as having fully met expectations. Goals related to various clinical, commercial and partnering milestones were generally positive, although in some areas the performance was assessed at somewhat less than 100%. Performance against budget was favorable as the management team carefully evaluated the timing for new areas of commercial spending and minimized or delayed these wherever possible.

Based on these and other performance considerations and as shown below in the “Summary Compensation Table,” Dr. Pedder, Dr. Hewitt, Mr. Riehle, Mr. Schmidt, Mr. Oliveto, Dr. Schwieterman and Dr. Roberts earned performance-based cash bonuses of $181,992, $49,717, $37,732, $39,130, $39,675, $63,629 and $41,827, respectively, for their services in 2011. These amounts represent 85%, 95%, 85%, 85%, 85%, 95% and 101% of the targeted bonus amounts for Dr. Pedder, Dr. Hewitt, Mr. Riehle, Mr. Schmidt, Mr. Oliveto, Dr. Schwieterman and Dr. Roberts, respectively.

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 enquiries 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. Accordingly, in

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addition to the bonus calculated against goal performance as described above, a one-time special bonus of $25,000 was paid to each of Dr. Pedder, Dr. Hewitt, Dr. Schwieterman and Mr. Oliveto for their extended contributions during 2011.

Also related to and in recognition of the company-wide efforts on the Northera NDA, in January 2012, the Compensation Committee recommended and the Board approved that in the event the Northera NDA receives FDA approval on or before June 30, 2012, each employee will receive a cash bonus equal to 20% of the corporate performance-based portion of the employee’s bonus target for 2011. As an example, if the corporate target was 20%, which is the maximum for a named executive officer other than the Chief Executive Officer, the resulting payout would equal 4% of the named executive officer’s 2011 base salary.

Discretionary Long-Term Equity Incentive Awards

Our named executive officers and all of our employees are eligible to participate in our annual award of stock option grants. We believe that the issuance of stock options sets in place a process by which the officers and employees can reward their own performance by driving the value of our stock price over the long term.

Guidelines for the number of stock options granted to each named executive officer are determined using a procedure approved by the Compensation Committee based upon several factors, including such officer’s level of responsibility, performance and the value of the stock option at the time of grant. As a result, additional grants other than the annual award may be made following a significant change in job responsibility or in recognition of a significant achievement. In addition, the Compensation Committee approves the awarding of an initial grant of stock options at the time of hire to attract talented executive officers.

Stock options granted under our stock plan generally have a four-year vesting schedule in order to provide an incentive for continued employment and generally expire ten years from the date of the grant. We grant options at or above the fair market value of the underlying stock on the date of grant.

We do not have any programs, plans or practices with respect to the timing of stock option grants in coordination with the release of material nonpublic information and the Compensation Committee generally grants all stock options at regularly-scheduled meetings or upon the commencement of employment of new employees. Likewise, we do not time the release of material nonpublic information for the purpose of affecting the value of equity or other compensation granted to our named executive officers. With respect to annual incentive stock option grants for our named executive officers, the Compensation Committee generally grants stock options to our named executive officers at the first regularly-scheduled meeting of each fiscal year.

Defined Contribution Plans

We have a Section 401(k) Savings/Retirement Plan, or 401(k) Plan, that covers all of our employees. The 401(k) Plan permits our eligible employees to defer compensation, subject to certain limitations imposed by the Internal Revenue Code. The employees’ elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan. We currently make matching contributions to the 401(k) Plan in an amount equal to 100% of the participants’ contributions, up to a maximum of 4% of the participant’s annual cash compensation and subject to certain other limits. Plan participants vest immediately in the amounts contributed by us. Our employees are eligible to participate in the 401(k) Plan immediately upon hire.

Other Benefits

We believe that establishing competitive benefit packages for our employees is an important factor in attracting and retaining highly-qualified personnel. Named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, group life and short-term and long-term disability insurance,

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in each case generally on the same basis as other employees. We, at our sole cost, provide to each named executive officer, the named executive officer’s spouse and eligible children such health and dental insurance as we may from time to time make available to all employees. In addition, beginning in 2007, we provide additional life and disability coverage for our named executive officers. The costs for such incremental benefits are included in the Summary Compensation Table and highlighted in Note 2 of the same table.

Recoupment Policy

On March 18, 2011, our Board adopted a recoupment policy that requires any executive officer to repay or return cash bonuses and/or equity awards in the event: (i) we issue a material restatement of our financial statements and where the restatement was caused by the employee’s intentional misconduct; (ii) the executive officer was found to be in violation of non-compete provisions of any plan or agreement; or (iii) the executive officer has committed ethical or criminal violations.

SUMMARY COMPENSATION TABLE

The following table sets forth compensation paid by us for services rendered to us in all capacities for the fiscal years ended December 31, 2009, 2010 and 2011 to our named executive officers.

Name and Principal Position	Year		Salary ($)		Bonus ($)		Option Awards ($)(1)		Incentive Plan Compen- sation ($)		All  Other Compen- sation ($)(2)		Total ($)
Simon Pedder, Ph.D.		2011		474,408		25,000		252,297		181,992		20,708		954,405
(President and Chief Executive Officer)		2010		460,608		—		376,443		267,600		20,604		1,245,307
		2009		447,164		—		262,115		231,405		21,086		1,169,018
L. Arthur Hewitt, Ph.D.		2011		261,600		25,000		252,297		49,717		20,596		609,210
(Vice President, Chief Scientific Officer)		2010		244,512		—		107,555		68,200		20,432		461,817
		2009		232,872		—		57,779		52,394		20,723		424,112
J. Nick Riehle		2011		221,304		—		252,297		37,732		16,885		528,218
(Vice President, Administration		2010		214,897		—		107,555		55,500		16,795		415,865
and Chief Financial Officer)		2009		199,007		—		57,779		45,770		16,375		379,275
Keith W. Schmidt		2011		229,512		—		252,297		39,130		17,589		538,528
(Vice President, Marketing and Sales)		2010		222,792		—		107,555		57,500		17,569		445,110
		2009		216,313		—		57,779		49,754		17,328		403,755
Joseph G. Oliveto		2011		232,704		25,000		252,297		39,675		15,186		564,862
(Vice President, Operations)		2010		225,912		—		107,555		58,300		19,942		405,307
		2009		219,310		—		57,779		50,439		34,684		378,698
William D. Schwieterman		2011		334,800		25,000		252,297		63,629		17,478		693,204
(Vice President, Chief Medical Officer)		2010		325,008		—		21,511		90,700		15,426		475,172
		2009		56,630		—		154,642		—		34,487		97,560
Michael J. Roberts		2011		206,304		—		252,297		41,827		12,167		512,595
(Vice President, Business Development)		2010		200,304		—		107,555		30,200		12,011		339,387
		2009		182,100		—		34,262		38,600		10,630		311,925

(1) The reported amounts represent the aggregate grant date fair value computed in accordance with ASC 718. All assumptions made regarding the valuation of equity awards can be referenced in Note 1 to the financial statements contained in this report. Amounts disclosed for Dr. Roberts for the fiscal year ended December 31, 2009 are prior to his becoming an officer of the company on January 1, 2010.

(2) Other compensation includes our 401(k) program matching contributions, our group term and executive life programs, our group and executive disability insurance programs, signing bonus and pre-employment consulting fees. The 401(k) related amounts reflects a 100% matching of employee contributions, up to 4%

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of total cash compensation, within limits set by the IRS for such programs. Consulting fees reflect amounts paid to Dr. Schwieterman for the fiscal year ended December 31, 2009 for consulting services, not including any compensation for services provided as a member of our Board of Directors, provided prior to commencing his employment on October 29, 2009. Amounts disclosed for Dr. Roberts for the fiscal year ended December 31, 2009 are prior to his becoming an officer of the company on January 1, 2010.

Name and Principal Position	Year		401(k) Company Match ($)		Life Insurance Premiums ($)		Disability Insurance Premiums ($)		Signing Incentive ($)		Consulting Fees ($)
Simon Pedder, Ph.D.		2011		9,800		3,258		7,650		—		—
(President and Chief Executive Officer)		2010		9,800		3,200		7,604		—		—
		2009		9,800		3,915		7,371		—		—
L. Arthur Hewitt, Ph.D.		2011		9,800		5,347		5,449		—		—
(Vice President and Chief Scientific Officer)		2010		9,800		5,300		5,332		—		—
		2009		9,800		5,705		5,218		—		—
J. Nick Riehle		2011		9,800		3,299		3,786		—		—
(Vice President, Administration and Chief Financial Officer)		2010		9,800		3,272		3,723		—		—
		2009		9,123		3,614		3,638		—		—
Keith W. Schmidt		2011		9,800		6,265		1,524		—		—
(Vice President, Marketing and Sales)		2010		9,800		6,245		1,524		—		—
		2009		9,167		6,637		1,524		—		—
Joseph G. Oliveto		2011		9,800		1,990		3,395		—		—
(Vice President, Operations)		2010		9,800		1,799		3,344		5,000		—
		2009		9,800		1,590		3,294		20,000		—
William D. Schwieterman		2011		9,800		2,752		4,926		—		—
(Vice President, Chief Medical Officer)		2010		9,800		797		4,829		—		—
		2009		2,265		1,585		2,173		—		28,464
Michael J. Roberts		2011		9,521		1,131		1,515		—		—
(Vice President, Business Development)		2010		9,577		919		1,515		—		—
		2009		8,406		810		1,413		—		—

Excluded from the above tables:

Name and Principal Position	Year		Board Fees ($)		Option Awards ($)
William D. Schwieterman		2011		—		—
(Vice President, Chief Medical Officer)		2010		—		—
		2009		38,833		34,668

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GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2011

The following table sets forth information concerning all plan-based awards granted during the year ended December 31, 2011 to the named executive officers.

									All Other Option Awards; Number of Securities Underlying Options		Exercise or Base Price of Option Awards ($/sh)		Stock Awards and Options Awards: Grant Date Fair Value ($)
			Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
Name	Grant Date		Thresh- old ($)		Target ($)		Maxi- mum ($)
Simon Pedder		01/11/11		—		213,480		320,220		—		—		—
		01/11/11		—		—		—		175,000		7.72		883,041
J. Nick Riehle		01/11/11		—		44,260		66,390		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297
L. Arthur Hewitt		01/11/11		—		52,320		78,480		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297
Keith W. Schmidt		01/11/11		—		45,900		68,850		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297
Joseph G. Oliveto		01/11/11		—		46,540		69,810		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297
William D. Schwieterman		01/11/11		—		66,960		100,440		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297
Michael J. Roberts		01/11/11		—		41,260		61,890		—		—		—
		01/11/11		—		—		—		50,000		7.72		252,297

All options granted to named executive officers in 2011 were granted pursuant to compensation objectives as described above and issued under our 2004 Stock Plan. All options granted vest over a four-year period, beginning on the first anniversary after grant. Options have a term of ten years.

67

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR FISCAL YEAR 2011

The following table sets forth information concerning the number and value of unexercised options held by each named executive officer as of December 31, 2011. None of the named executive officers held restricted stock or other equity awards at December 31, 2011.

Option Awards

Stock Awards

Number of Securities Underlying Unexercised Options

Option Exercise Price ($)

Option Expiration Date (1)

Number of Shares or Units of Stock That Have Not (#)

Market Value  of Shares or Units of Stock That ($)(1)

Equity Incentive Plan Awards; Unearned Shares, Unit or Other Rights That Have Not Vested

Name

Exer- cisable (#)

Unexer- cisable (#)

(#)

($)

Simon Pedder

478,726

—

2.62

1/10/2015

n/a

n/a

n/a

n/a

100,000

—

3.50

2/1/2016

n/a

n/a

n/a

n/a

167,585

—

3.90

6/19/2016

n/a

n/a

n/a

n/a

175,000

—

5.68

2/6/2017

n/a

n/a

n/a

n/a

131,250

43,750

6.50

1/24/2018

n/a

n/a

n/a

n/a

87,500

87,500

1.78

1/22/2019

n/a

n/a

n/a

n/a

23,945

23,945

1.85

5/1/2019

n/a

n/a

n/a

n/a

43,750

131,250

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

175,000

7.72

1/11/2021

n/a

n/a

n/a

n/a

J. Nick Riehle

68,923

—

2.62

1/10/2015

n/a

n/a

n/a

n/a

50,000

—

3.26

1/19/2016

n/a

n/a

n/a

n/a

50,000

—

5.68

2/6/2017

n/a

n/a

n/a

n/a

37,500

12,500

6.50

1/24/2018

n/a

n/a

n/a

n/a

25,000

25,000

1.78

1/22/2019

n/a

n/a

n/a

n/a

12,500

37,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

n/a

n/a

n/a

n/a

L. Arthur Hewitt

68,923

—

2.62

1/10/2015

n/a

n/a

n/a

n/a

50,000

—

3.26

1/19/2016

n/a

n/a

n/a

n/a

50,000

—

5.68

2/6/2017

n/a

n/a

n/a

n/a

37,500

12,500

6.50

1.24/2018

n/a

n/a

n/a

n/a

25,000

25,000

1.78

1/22/2019

n/a

n/a

n/a

n/a

12,500

37,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

n/a

n/a

n/a

n/a

Keith W. Schmidt

75,000

—

5.45

1/31/2017

n/a

n/a

n/a

n/a

37,500

12,500

6.50

1/24/2018

n/a

n/a

n/a

n/a

25,000

25,000

1.78

1/22/2019

n/a

n/a

n/a

n/a

12,500

37,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

n/a

n/a

n/a

n/a

Joseph G. Oliveto

56,250

18,750

5.63

6/13/2018

n/a

n/a

n/a

n/a

25,000

25,000

1.78

1/22/2019

n/a

n/a

n/a

n/a

12,500

37,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

William D. Schwieterman (2)

26,250

8,750

5.07

6/26/2018

n/a

n/a

n/a

n/a

15,000

15,000

1.78

1/22/2019

n/a

n/a

n/a

n/a

37,500

37,500

2.82

10/29/2019

n/a

n/a

n/a

n/a

2,500

7,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

Michael J. Roberts (3)

21,078

—

0.18

8/19/2014

n/a

n/a

n/a

n/a

48,247

—

2.62

1/10/2015

n/a

n/a

n/a

n/a

35,000

—

3.50

2/1/2016

n/a

n/a

n/a

n/a

35,000

—

5.68

2/6/2017

n/a

n/a

n/a

n/a

26,250

8,750

6.34

1/29/2018

n/a

n/a

n/a

n/a

17,500

17,500

1.50

2/9/2019

n/a

n/a

n/a

n/a

12,500

37,500

2.96

1/19/2020

n/a

n/a

n/a

n/a

—

50,000

7.72

1/11/2021

⁽¹⁾  Each option was granted 10 years prior to the expiration date and vests in four equal annual installments after the date of grant.

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⁽²⁾  Options granted to Dr. Schwieterman in June 2008 and January 2009 were made in his capacity as a member of the Board of Directors.

⁽³⁾  Options granted to Dr. Roberts prior to January 1, 2010 were made prior to his becoming an officer of the company.

OPTION EXERCISES AND STOCK VESTED FOR FISCAL YEAR 2011

The table below sets forth information concerning the exercise of stock options for each named executive officer during 2011. None of our named executive officers held restricted stock or other equity awards in the year ended December 31, 2011.

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on  Exercise ($)(1)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
Simon Pedder		—		—		n/a		n/a
L. Arthur Hewitt		—		—		n/a		n/a
J. Nick Riehle		—		—		n/a		n/a
Keith W. Schmidt		—		—		n/a		n/a
Joseph G. Oliveto		—		—		n/a		n/a
William D. Schwieterman		—		—		n/a		n/a
Michael J. Roberts		—		—		n/a		n/a

Employment Agreement and Potential Payments upon Termination or Change in Control

On March 2, 2012, we entered into an employment agreement with Dr. Pedder, our Chief Executive Officer. This agreement is effective as of January 1, 2012 and expires on December 31, 2014. This agreement replaced the prior agreement we had with Dr. Pedder. The following discussion concerns Dr. Pedder’s employment agreement.

The compensation program agreed to in the agreement is consistent with the compensation philosophies discussed above. The agreement provides for a base salary, initially set at $491,000, and an incentive bonus targeted at 50% of base salary (which had been 45% under the prior agreement). Dr. Pedder’s actual incentive bonus amount is determined pursuant to our annual incentive bonus program and is contingent upon the achievement of pre-established performance goals.

Under the agreement, Dr. Pedder is prohibited for 12 months after termination (other than expiration and non-renewal of the agreement at the end of its term) from (a) engaging in any business within the restricted territory, which is the U.S. and Canada, that develops or commercializes products designed to treat immunological diseases or other products that compete with products we are developing or selling at the time of his termination, (b) soliciting or accepting employment, whether as an employee, consultant or contractor, within the restricted territory with any of our customers or other business associates at the time of his termination that could benefit from Dr. Pedder’s use of our confidential information, (c) becoming financially interested with one of our competitors within the restricted territory, (d) soliciting or accepting business from any of our customers with whom he worked or whom he solicited in the last 12 months of his employment with us, and (e) soliciting or inducing any employee, consultant or independent contractor of ours to terminate employment or a contractual relationship with us. If after expiration and non-renewal of the agreement at the end of its term, we wish Dr. Pedder to be subject to the non-competition and non-solicitation provisions of the agreement, we must pay him his then current base salary for a period of one year.

Set forth below is a description of the principal terms of the agreement and the potential payments we will need to make upon termination of Dr. Pedder’s employment, including upon a change in control of Chelsea.

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Termination due to Death or Disability

If Dr. Pedder’s employment is terminated as a result of his death or disability, we must pay him or his estate, as applicable, his then current base salary for a period of one year following the date of termination, currently $491,000, and any earned but unpaid incentive bonus, currently targeted at $245,500, plus any unpaid expense reimbursement amounts through the date of his death or disability.

Termination by us For Cause

If we terminate Dr. Pedder’s employment for cause (as defined in the agreement; see below), we must pay his then current base salary through the date of his termination and any expense reimbursement amounts owed through the date of termination.

Termination by us other than For Cause or by Dr. Pedder for Good Reason, including after a Change in Control

If Dr. Pedder’s employment is terminated (i) by us other than for cause or (ii) by Dr. Pedder for good reason (as defined in the agreement; see below), including termination after a change in control (as defined in the agreement; see below), then we must (1) continue to pay to Dr. Pedder (or his estate in the event of his death) his then current base salary, currently $491,000, for the longer of the agreement’s remaining term or one year following such termination, (2) pay him any earned but unpaid incentive bonus, currently targeted at $245,500 for 2012, (3) pay him excess COBRA premiums (group health premiums paid on behalf of Dr. Pedder in 2011 totaled $15,255 for the year) for 12 months after termination, and (4) pay him any expense reimbursement amounts owed through the date of termination. All unvested stock options granted to Dr. Pedder will be accelerated and deemed to have vested as of the termination date. If termination had occurred on December 31, 2011, a total of 461,445 options that were unvested at December 31, 2011 would have vested in full, with a market value of $1,245,026, based on the exercise price of any of those options that are less than $5.13, which was the closing price per share of our common stock on December 31, 2011. Dr. Pedder will have until the earlier of 180 days after termination or the latest date upon which the respective options expire to exercise the options.

In the event that Dr. Pedder’s employment is terminated by us (or our successor) without cause or is terminated by Dr. Pedder for good reason, in either case within 90 days after the occurrence of a change of control and the fair market value of our common stock, in the aggregate, on the date of such change of control, is less than $50,000,000, then we (or our successor, as applicable) must continue to pay to Dr. Pedder (or his estate in the event of his death) his then current base salary, currently $491,000, and excess COBRA premiums (group health premiums paid on behalf of Dr. Pedder in 2011 totaled $15,255 for the year) for the shorter of the agreement’s remaining term or one year following such termination, as well as any expense reimbursement amounts owed through the date of termination. All unvested stock options granted to Dr. Pedder will be accelerated and deemed to have vested as of the termination date. If termination had occurred on December 31, 2011, a total of 461,445 options that were unvested at December 31, 2011 would have vested in full, with a market value of $1,245,026, based on the exercise price of any of those options that are less than $5.13, which was the closing price per share of our common stock on December 31, 2011.

In the agreement, the term “cause” is defined generally as:

• willful failure, disregard or refusal by Dr. Pedder to perform his duties;

• willful, intentional or grossly negligent act by Dr. Pedder that injures, in a material way, our business or reputation;

• willful misconduct by Dr. Pedder, in respect of his duties, including insubordination with respect to lawful directions received from our Board of Directors;

• conviction of any felony;

70

• engaging in some form of harassment prohibited by law;

• any misappropriation or embezzlement of our property;

• willful violation of the noncompetition, nonsolicitation and confidentiality provisions of the agreement; and/or

• breach by Dr. Pedder of any other provision of the agreement that, if capable of being cured, is not cured by him within 30 days.

In the agreement, the term “good reason” is defined generally as:

• the assignment to Dr. Pedder of duties materially inconsistent with his position and duties as described in the agreement;

• any material reduction by us of Dr. Pedder’s duties, responsibilities, compensation or benefits; and/or

• the occurrence of any of the events described in the prior two bullets after the occurrence of a change in control.

In the agreement, the term “change in control” is defined generally as:

• the acquisition by any person of more than 50% of the voting power of our then outstanding securities;

• the merger or consolidation of our company or the sale of all or substantially all of our assets; or

• the members of our Board of Directors on February 29, 2012 and subsequent Board approved directors cease to constitute a majority of our Board.

DIRECTOR COMPENSATION FOR FISCAL YEAR 2011

Director Compensation Philosophy

The general policy of our Board of Directors is that compensation for independent directors should be a mix of cash and equity-based compensation. For fiscal years 2011 and 2012, the Compensation Committee evaluated the appropriate level and form of compensation for independent directors and recommended changes to the Board when appropriate. The Compensation Committee will make such compensation evaluations and recommendations annually. The Board reviews the Committee’s recommendations and then determines the amount of director compensation.

Fees Earned or Paid in Cash

In 2011 we made quarterly payments of the annual cash retainer due to each director and also made cash payments for Board and committee meetings. The base annual retainer for our non-employee Chairman of the Board of Directors is $35,000 and the base annual retainer for our other non-employee directors is $25,000. Additional annual retainers of $5,000 are paid to non-employee board members for each Board committee on which he serves in the capacity of chairman, with $2,500 to non-employee director for each of the Board committees on which he serves in a capacity other than chairman. We also pay $1,500 and $1,000 to non-employee directors for each in-person attendance at Board of Directors and Board committee meetings, respectively, and $750 and $500 to non-employee directors for each participation in Board of Directors and Board committee meetings by telephone, respectively. Non-employee members of our Board of Directors were also entitled to receive $500 per hour for ad hoc consultancy, as approved in writing by our Chief Executive Officer or the Chairman of our Board of Directors except as otherwise negotiated.

We also reimburse each member of our Board of Directors for out-of-pocket expenses incurred in connection with attending Board of Directors and Board committee meetings.

71

Equity Compensation

Our annual equity compensation for our non-employee directors in 2011 and for 2012 is as follows: (1) the non-employee Chairman of the Board of Directors receives an option to purchase 30,000 shares; (2) our other non-employee directors receive an option to purchase 25,000 shares; (3) the non-employee chairman of each of our Board committees receives an option to purchase 5,000 shares; and (4) each non-employee director receives an option to purchase 2,500 shares for each Board committee on which he serves in a capacity other than as the chairman. New directors receive an option to purchase 30,000 shares upon joining our Board. Each option vests in four equal annual installments from the date of grant.

The following table shows 2011 compensation for our non-employee directors.

Name	Fees Earned or Paid in Cash ($)(1)		Option  Awards ($)(2)(3)		Total ($)
Kevan Clemans		56,250		201,838		258,088
Norman Hardman		42,750		151,378		194,128
Johnson Y. N. Lau		52,500		176,608		229,108
Roger Stoll		46,000		151,378		197,378
Michael Weiser		42,250		151,378		193,628
William Rueckert		45,750		151,378		197,128

⁽¹⁾  Fees reflect amounts expensed in 2011 for fee payments made in 2011 or subsequently.

⁽²⁾  The reported amounts represent the aggregate grant date fair value computed in accordance with ASC 718. All assumptions made regarding the valuation of equity awards can be referenced in Note 1 to the financial statements contained in this report.

⁽³⁾  At December 31, 2011, Dr. Clemens had 270,210 options outstanding, Dr. Hardman had 125,000 options outstanding, Dr. Lau had 245,210 options outstanding, Dr. Stoll had 125,000 options outstanding, Dr. Weiser had 183,802 options outstanding and Mr. Rueckert had 95,000 options outstanding. There were no forfeitures of options held by directors in 2011.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated by reference from the information under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our proxy statement for the 2012 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this report relates.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Incorporated by reference from the information under the headings “Certain Transactions with Related Persons”, “Proposal One – Election of Directors” and “Corporate Governance Matters” in our proxy statement for the 2012 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this report relates.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference from the information under the heading “Audit Committee Report” in our proxy statement for the 2012 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this report relates.

72

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

(a) Financial Statements.

The following statements are filed as part of this report:

	Page
Reports of Independent Registered Public Accounting Firms		F-1
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Stockholders’ Equity		F-5
Consolidated Statements of Cash Flows		F-10
Notes to Consolidated Financial Statements		F-12

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

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(b) Exhibits.

Exhibit Number	Description of Document	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
1.1	Placement Agency Agreement dated November 1, 2007 by and among Chelsea Therapeutics International, Ltd., Leerink Swann LLC, Oppenheimer & Co. Inc. and Punk Ziegel & Company.	8-K	11/02/07	1.1
1.2	Placement Agency Agreement dated July 22, 2009 by and among Chelsea Therapeutics International, Ltd., Wedbush Morgan Securities, Inc. and Ladenburg Thalmann & Co. Inc.	8-K	07/23/09	1.1
1.3	Placement Agency Agreement dated February 26, 2010 by and among the Company, Leerink Swann LLC and Needham & Company, LLC.	8-K	02/26/10	1.1
1.4	Equity Underwriting Agreement, dated October 1, 2010, between Chelsea Therapeutics International, Ltd. and Deutsche Bank Securities Inc., as representative of the several underwriters.	8-K	10/01/10	1.2
1.5	Equity Underwriting Agreement, dated February 18, 2011, between Chelsea Therapeutics International, Ltd. and Deutsche Bank Securities Inc., as representative of the several underwriters.	8-K	02/18/11	1.3
1.6	Underwriting Agreement, dated January 6, 2012, between Chelsea Therapeutics International, Ltd. and Leerink Swann LLC, as representative of several underwriters.	8-K	01/06/12	1.5
2.1	Agreement and Plan of Merger by and among Ivory Capital Corporation, Chelsea Therapeutics, Inc. and Chelsea Acquisition Corp, dated as of January 17, 2005.	8-K+	01/21/05	2.1
2.2	Agreement and Plan of Merger between Ivory Capital Corporation and Chelsea Therapeutics International, Ltd., dated as of June 17, 2005.	14A+	07/28/05	Appendix A
3.1	Certificate of Incorporation for Chelsea Therapeutics International, Ltd., as amended on June 1, 2010	10-Q	11/01/11	3.1
3.2	Bylaws of Chelsea Therapeutics International, Ltd.	S-1/A	08/18/05	3.2
4.1	Form of Registered Direct Warrant issued to investors on March 5, 2010.	8-K	02/26/10	4.1
10.1*	License Agreement dated as of March 24, 2004 between M. Gopal Nair and Chelsea Therapeutics, Inc. (f/k/a Aspen Therapeutics, Inc.)	8-K+	02/16/05	10.1
10.2	Form of Subscription Agreement for the purchase of Series A Convertible Preferred Stock of Chelsea Therapeutics, Inc.	8-K+	02/16/05	10.3

74

Exhibit Number	Description of Document	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.3	Chelsea Therapeutics International, Ltd. 2004 Stock Plan, as amended, and forms of Notice of Stock Option Grant and Stock Option Agreement, as amended January 25, 2012.					X
10.4	Form of Subscription Agreement and Warrant for the purchase of common stock, par value $0.0001 per share, of Chelsea Therapeutics International, Ltd.	8-K	02/17/06	10.5
10.5	Placement Agency Agreement dated November 28, 2005 between Chelsea Therapeutics International, Ltd. and Paramount BioCapital, Inc.	10-K	03/08/06	10.6
10.6	Employment Agreement between Chelsea Therapeutics International, Ltd. and Dr. Simon Pedder, dated March 2, 2012.					X
10.7*	Development and Commercialization Agreement dated as of May 5, 2006 between Active Biotech AB and Chelsea Therapeutics International, Ltd.	10-Q	08/14/06	10.8
10.8*	Exclusive License Agreement effective May 26, 2006 between Dainippon Sumitomo Pharma Co., Ltd. and Chelsea Therapeutics, Inc.	10-Q	08/14/06	10.9
10.9*	Finder’s Agreement dated May 26, 2006 between Paramount BioCapital, Inc. and Chelsea Therapeutics International, Ltd.	10-Q	08/14/06	10.10
10.10	Form of Subscription Agreement for the purchase of common stock of Chelsea Therapeutics International, Ltd. dated March 19, 2007 and related form of Warrant, dated March 22, 2007.	8-K	03/20/07	10.11
10.11	Form of Subscription Agreement for the purchase of common stock of Chelsea Therapeutics International, Ltd. dated November 1, 2007.	8-K	11/02/07	10.12
10.12	Form of Subscription Agreement for the purchase of common stock of Chelsea Therapeutics International, Ltd.	8-K	07/23/09	10.14
10.13	Form of Subscription Agreement for the purchase of common stock and warrants to purchase common stock of Chelsea Therapeutics International, Ltd.	8-K	02/26/10	10.15
10.14	Sales Agreement, dated July 2, 2010, between Chelsea Therapeutics, Ltd. and Cantor Fitzgerald & Co.	S-3	01/10/11	10.16
10.15	Amendment No. 1, dated July 26, 2011, to Sales Agreement, dated July 2, 2010, between Chelsea Therapeutics International, Ltd. and Cantor Fitzgerald & Co.	8-K	07/26/11	10.15
10.16	Amendment No. 2, dated December 28, 2011, to Sales Agreement, dated July 2, 2010, as amended July 26, 2011, between Chelsea Therapeutics International, Ltd. and Cantor Fitzgerald & Co.	8-K	12/29/11	10.16

75

Exhibit Number	Description of Document	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.17**	Manufacturing Services Agreement, dated November 7, 2011, between Chelsea Therapeutics, Inc. and Patheon Inc.					X
21.1	Subsidiaries of Chelsea Therapeutics International, Ltd.	10-K	03/12/07	21.1
23.1	Consent of Independent Registered Public Accounting Firm.					X
23.2	Consent of Independent Registered Public Accounting Firm.					X
31.1	Certification by the Chief Executive Officer pursuant to Section 240.13a-14 or section 240.15d-14 of the Securities and Exchange Act of 1934, as amended.					X
31.2	Certification by the Chief Financial Officer pursuant to Section 240.13a-14 or section 240.15d-14 of the Securities and Exchange Act of 1934, as amended.					X
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101	Financials submitted in XBRL format.					X

* The registrant received confidential treatment with respect to certain portions of this exhibit. Such portions have been omitted from this exhibit and have been filed separately with the SEC.

** The registrant has requested confidential treatment with respect to certain portions of this exhibit, which portions have been omitted from this exhibit and have been filed separately with the SEC.

+ Filed by Ivory Capital Corporation, predecessor in interest.

76

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 7^th day of March 2012.

CHELSEA THERAPEUTICS INTERNATIONAL, LTD.
By:	/s/    SIMON PEDDER
	Simon Pedder, Ph.D. President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the 7^th day of March 2012.

Name	Title
/s/    SIMON PEDDER         Simon Pedder, Ph.D.	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/    J. NICK RIEHLE         J. Nick Riehle	Vice President, Administration and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/    MICHAEL WEISER         Michael Weiser, M.D., Ph.D.	Director
/s/    KEVAN CLEMENS         Kevan Clemens, Ph.D.	Director
/s/    JOHNSON Y.N. LAU         Johnson Y.N. Lau, M.D.	Director
/s/    NORMAN HARDMAN         Norman Hardman, Ph.D.	Director
/s/    WILLIAM D. RUECKERT         William D. Rueckert	Director
/s/    ROGER STOLL         Roger Stoll, Ph.D.	Director

77

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Chelsea Therapeutics International, Ltd. and Subsidiary

We have audited the accompanying consolidated balance sheets of Chelsea Therapeutics International, Ltd. and Subsidiary (a development stage company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011, and for the period from April 3, 2002 (inception) through December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from April 3, 2002 (inception) through December 31, 2007, were audited by other auditors whose report dated March 10, 2008 expressed an unqualified opinion on those statements. The financial statements for the period from April 3, 2002 (inception) through December 31, 2007 include total operating expenses and net loss of $37,144,571 and $34,685,202, respectively. Our opinion on the consolidated statements of operations, changes in stockholders’ equity, and cash flows for the period from April 3, 2002 (inception) through December 31, 2011, insofar as it relates to amounts for prior periods through December 31, 2007, is based solely on the report of other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chelsea Therapeutics International, Ltd. and Subsidiary at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, and the period from April 3, 2002 (inception) through December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chelsea Therapeutics International, Ltd. and Subsidiary’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Raleigh, North Carolina

March 7, 2012

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Chelsea Therapeutics International, Ltd.

We have audited the consolidated statements of operations (not presented separately herein), changes in stockholders’ equity and cash flows (not presented separately herein) of Chelsea Therapeutics International, Ltd. and Subsidiary (a development stage company) for the period from April 3, 2002 (inception) to December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Chelsea Therapeutics International, Ltd. and Subsidiary for the period from April 3, 2002 (inception) to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ J.H. Cohn LLP

Roseland, New Jersey

March 10, 2008

F-2

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

	December 31, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	41,106,301		$	47,593,055
Short-term investments, net		4,500,000			—
Prepaid contract research and manufacturing		173,592			316,363
Other prepaid expenses and other current assets		793,521			246,374
Total current assets		46,573,414			48,155,792
Property and equipment, net		291,024			180,021
Other assets		38,267			38,095
	$	46,902,705		$	48,373,908
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,866,356		$	2,288,241
Accrued compensation and related expenses		1,419,437			1,167,082
Accrued contract research and manufacturing		5,245,339			8,950,469
Other accrued expenses		1,706,763			780,352
Total current liabilities		13,237,895			13,186,144
Commitments
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.0001 par value, 100,000,000 shares authorized and 62,034,146 and 49,790,975 shares issued and outstanding, respectively		6,203			4,979
Additional paid-in capital		216,984,108			168,056,121
Deficit accumulated during the development stage		(183,325,501	)		(132,873,336	)
Total stockholders’ equity		33,664,810			35,187,764
	$	46,902,705		$	48,373,908

See accompanying notes to consolidated financial statements.

F-3

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the years ended December 31,									Period from April 3, 2002 (inception) through December 31, 2011
	2011			2010			2009
Operating expenses:
Research and development	$	37,270,138		$	30,871,125		$	23,985,118		$	145,760,423
Sales and marketing		8,067,709			2,476,494			2,289,451			17,024,576
General and administrative		5,276,146			4,154,944			4,075,663			25,223,673
Total operating expenses		50,613,993			37,502,563			30,350,232			188,008,672
Operating loss		(50,613,993	)		(37,502,563	)		(30,350,232	)		(188,008,672	)
Interest income		161,828			242,883			336,850			4,941,519
Interest expense		—			(70,389	)		(149,019	)		(258,348	)
Other income (expense)		—			—			4,390,487			—
Net loss	$	(50,452,165	)	$	(37,330,069	)	$	(25,771,914	)	$	(183,325,501	)
Net loss per basic and diluted share of common stock	$	(0.84	)	$	(0.91	)	$	(0.82	)
Weighted average number of basic and diluted common shares outstanding		60,136,326			41,184,623			31,549,739

See accompanying notes to consolidated financial statements.

F-4

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common stock				Additional Paid-In Capital			Unpaid Subscription on common stock			Deferred stock-based compensation			Deficit accumulated during the development stage			Total stockholders’ equity
	Shares		Amount
Issuance of common stock to founders in April 2002		5,428,217	$	542	$	4,083		$	(4,625	)	$	—		$	—		$	—
Balance at December 31, 2003		5,428,217		542		4,083			(4,625	)		—			—			—
Common stock issued in March 2004, at approximately $0.0009 per share, for license fee		471,816		47		355			—			—			—			402
Sale and issuance of common stock in April 2004, at approximately $0.0009 per share to chief executive		478,330		48		360			—			—			—			408
Receipt of cash for stock subscription receivable		—		—		—			4,625			—			—			4,625
Sale and issuance of common stock in December 2004 at approximately $2.45 per share, net of issuance costs		5,532,994		554		13,550,255			—			—			—			13,550,809
Deferred stock-based compensation		—		—		33,525			—			(33,525	)		—			—
Amortization of deferred stock-based compensation		—		—		—			—			1,529			—			1,529
Net loss		—		—		—			—			—			(3,016,559	)		(3,016,559	)
Balance at December 31, 2004		11,911,357		1,191		13,588,578			—			(31,996	)		(3,016,559	)		10,541,214
Recapitalization of the Company (See Note 1)		457,168		46		(400,046	)		—			—			—			(400,000	)
Employee stock options exercised		14,663		1		998			—									999
Adoption of SFAS 123R		—		—		(31,996	)		—			31,996			—			—
Amortization of deferred stock-based compensation		—		—		99,319			—			—			—			99,319
Variable accounting for stock options granted to third party		—		—		58,594			—			—			—			58,594
Net loss		—		—		—			—			—			(7,915,722	)		(7,915,722	)
Balance at December 31, 2005		12,383,188		1,238		13,315,447			—			—			(10,932,281	)		2,384,404
Sale and issuance of common stock with detachable warrants in February 2006 at approximately $2.77 per share, net of issuance costs		7,166,666		717		19,854,935			—			—			—			19,855,652
Common stock issued in March 2006, at par, pursuant to net-share (cashless) exercise of common stock warrants		15,461		2		(2	)		—			—			—			—
Common stock issued in May 2006, at approximately $4.35 per share, for license fee		63,131		6		274,615			—			—			—			274,621
Employee stock options exercised		78,683		8		5,072			—			—			—			5,080
Stock-based compensation		—		—		283,983			—			—			—			283,983
Variable accounting for stock options granted to third party		—		—		4,192			—			—			—			4,192
Net loss		—		—		—			—			—			(8,671,376	)		(8,671,376	)
Balance at December 31, 2006		19,707,129		1,971		33,738,242			—			—			(19,603,657	)		14,136,556

See accompanying notes to consolidated financial statements.

F-5

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

	Common stock				Additional Paid-In Capital			Unpaid Subscription on common stock		Deferred stock-based compensation		Deficit accumulated during the development stage			Total stockholders’ equity
	Shares		Amount
Balance at December 31, 2006		19,707,129		1,971		33,738,242			—		—		(19,603,657	)		14,136,556
Common stock issued during 2007, at par, pursuant to net-share (cashless) exercises of common stock warrants		68,136		6		(6	)		—		—		—			—
Fair value of warrants issued in May 2006 in consideration of finders fee at approximately $1.75 per share for which vesting was conditioned on an even that occurred in January 2007		—		—		433,750			—		—		—			433,750
Sale and issuance of common stock with detachable warrants in March 2007 at approximately $4.33 per share, net of issuance costs		2,648,306		265		11,476,412			—		—		—			11,476,677
Common stock issued in April 2007, at approximately $5.63 per share, for license fee		26,643		3		149,997			—		—		—			150,000
Common stock issued in June 2007, at $4.20 per share, pursuant to exercise of common stock warrants, net of fees		60,000		6		246,994			—		—		—			247,000
Common stock issued in October 2007, at $4.20 per share, pursuant to exercise of common stock warrants		1,200		—		5,040			—		—		—			5,040
Sale and issuance of common stock in November 2007 at approximately $6.19 per share, net of issuance costs		7,388,172		739		45,754,030			—		—		—			45,754,769
Employee stock options exercised		17,868		2		15,704			—		—		—			15,706
Stock-based compensation		—		—		828,626			—		—		—			828,626
Net loss		—		—		—			—		—		(15,081,545	)		(15,081,545	)
Balance at December 31, 2007		29,917,454		2,992		92,648,789			—		—		(34,685,202	)		57,966,579

See accompanying notes to consolidated financial statements.

F-6

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

	Common stock				Additional Paid-In Capital			Unpaid Subscription on common stock		Deferred stock-based compensation		Deficit accumulated during the development stage			Total stockholders’ equity
	Shares		Amount
Balance at December 31, 2007		29,917,454		2,992		92,648,789			—		—		(34,685,202	)		57,966,579
Common stock issued during 2008, at par, pursuant to net-share (cashless) exercises of common stock warrants		57,983		6		(6	)		—		—		—			—
Common stock issued in 2008, at $4.20 per share, pursuant to exercise of common stock warrants		11,200		1		47,039			—		—		—			47,040
Final adjustment to issuance costs accrued in conjunction with the sale and issuance of common stock in November 2007 at approximately $6.19 per share		—		—		5,733			—		—		—			5,733
Common stock issued in April 2008, at approximately $4.90 per share, for license fee		30,612		3		149,997			—		—		—			150,000
Employee stock options exercised		94,230		9		58,935			—		—		—			58,944
Stock-based compensation		—		—		1,405,752			—		—		—			1,405,752
Net loss		—		—		—			—		—		(35,086,151	)		(35,086,151	)
Balance at December 31, 2008		30,111,479		3,011		94,316,239			—		—		(69,771,353	)		24,547,897
Common stock issued during 2009, at par, pursuant to net-share (cashless) exercises of common stock warrants		63,927		6		(6	)		—		—		—			—
Sale and issuance of common stock in July 2009 at approximately $3.73 per share, net of issuance costs		3,325,000		333		12,402,425			—		—		—			12,402,758
Stock-based compensation		—		—		1,673,165			—		—		—			1,673,165
Net loss		—		—		—			—		—		(25,771,914	)		(25,771,914	)
Balance at December 31, 2009		33,500,406		3,350		108,391,823			—		—		(95,543,267	)		12,851,906

See accompanying notes to consolidated financial statements.

F-7

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

	Common stock				Additional Paid-In Capital			Unpaid Subscription on common stock		Deferred stock-based compensation		Deficit accumulated during the development stage			Total stockholders’ equity
	Shares		Amount
Balance at December 31, 2009		33,500,406		3,350		108,391,823			—		—		(95,543,267	)		12,851,906
Sale and issuance of common stock with detachable warrants in March 2010 at approximately $2.50 per share, net of issuance costs		6,700,000		670		16,762,253			—		—		—			16,762,923
Sale and issuance of common stock in controlled at-the-market equity offering in September 2010 at approximately $4.49 per share, net of issuance costs		634,500		63		2,851,313			—		—		—			2,851,376
Sale and issuance of common stock in October 2010 at approximately $4.60 per share, net of issuance costs		8,214,286		821		37,788,721			—		—		—			37,789,542
Common stock issued in 2010 at par, pursuant to net-share (cashless) exercises of common stock warrants		676,228		68		(68	)		—		—		—			—
Common stock issued in 2010 at $4.20 per share pursuant to exercise of common stock warrants		65,555		7		275,324			—		—		—			275,331
Stock-based compensation		—		—		1,986,755			—		—		—			1,986,755
Net loss		—		—		—			—		—		(37,330,069	)		(37,330,069	)
Balance at December 31, 2010		49,790,975	$	4,979	$	168,056,121		$	—	$	—	$	(132,873,336	)	$	35,187,764

See accompanying notes to consolidated financial statements.

F-8

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

	Common stock				Additional Paid-In Capital			Unpaid Subscription on common stock		Deferred stock-based compensation		Deficit accumulated during the development stage			Total stockholders’ equity
	Shares		Amount
Balance at December 31, 2010		49,790,975		4,979		168,056,121			—		—		(132,873,336	)		35,187,764
Sale and issuance of common stock in February 2011 at approximately $3.75 per share, net of issuance costs		10,062,500		1,006		37,725,532			—		—		—			37,726,538
Recovery of short-swing profits, net of expenses		—		—		73,797			—		—		—			73,797
Common stock issued in 2011 at $4.20 per share pursuant to cash exercises of common stock warrants		1,993,444		199		8,372,265			—		—		—			8,372,464
Common stock issued in 2011 at $2.88 per share pursuant to cash exercises of common stock warrants		37,277		4		107,667			—		—		—			107,671
Common stock issued in 2011 at par, pursuant to net-share (cashless) exercises of common stock warrants		149,950		15		(15	)		—		—		—			—
Stock-based compensation		—		—		2,648,741			—		—		—			2,648,741
Net loss		—		—		—			—		—		(50,452,165	)		(50,452,165	)
Balance at December 31, 2011		62,034,146	$	6,203	$	216,984,108		$	—	$	—	$	(183,325,501	)	$	33,664,810

See accompanying notes to consolidated financial statements.

F-9

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended December 31,									Period from April 3, 2002 (inception) through December 31, 2011
	2011			2010			2009
Operating activities:
Net loss	$	(50,452,165	)	$	(37,330,069	)	$	(25,771,914	)	$	(183,325,501	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock-based compensation		2,648,741			1,986,755			1,673,165			8,990,656
Depreciation and amortization		116,465			75,610			69,431			421,979
Stock issued for license fee		—			—			—			575,023
Non-cash interest expense		—			—			—			34,020
Other-than temporary impairment (gain on recovery) of short-term and long-term investments		—			—			(4,390,487	)		—
Gain on disposition of fixed assets		—			—			—			(2,208	)
Fair value of warrants for finder’s fee		—			—			—			433,750
Changes in operating assets and liabilities:
Prepaid contract research and manufacturing expenses, other prepaid expenses and other assets		(404,377	)		(139,164	)		303,665			(967,114	)
Accounts payable, accrued contract research and manufacturing expenses and other accrued expenses		(200,603	)		2,882,709			(2,588,850	)		11,818,460
Accrued compensation and related expenses		252,355			272,386			314,821			1,419,437
Net cash used in operating activities		(48,039,584	)		(32,251,773	)		(30,390,169	)		(160,601,498	)
Investing activities:
Acquisitions of property and equipment		(227,468	)		(151,836	)		(14,037	)		(714,473	)
Proceeds from sale of assets		—			—			—			3,677
Purchases of short-term investments		(65,605,570	)		—			—			(115,143,906	)
Redemptions of short-term investments		61,105,570			11,450,000			14,575,000			110,643,906
Security deposits		(172	)		38,855			—			(38,267	)
Net cash (used in) provided by investing activities		(4,727,640	)		11,337,019			14,560,963			(5,249,063	)
Financing activities:
Proceeds from borrowings from affiliate		—			—			—			1,745,000
(Repayment of) borrowings from line of credit		—			(11,466,012	)		4,188,544			—
Proceeds from exercise of stock options		—			—			—			80,729
Proceeds from exercise of common stock warrants		8,480,135			275,331			—			9,054,546
Proceeds from sales of equity securities, net of issuance costs		37,726,538			57,403,841			12,402,758			196,398,165
Receipt of recovery of short-swing profits		73,797									73,797
Recapitalization of the Company		—			—			—			(400,000	)
Receipt of cash for stock subscription receivable		—			—			—			4,625
Net cash provided by financing activities		46,280,470			46,213,160			16,591,302			206,956,862
Net (decrease) increase in cash and cash equivalents		(6,486,754	)		25,298,406			762,096			41,106,301
Cash and cash equivalents, beginning of period		47,593,055			22,294,649			21,532,553			—
Cash and cash equivalents, end of period	$	41,106,301		$	47,593,055		$	22,294,649		$	41,106,301
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	70,389		$	149,019		$	224,328

See accompanying notes to consolidated financial statements.

F-10

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosure of non-cash investing and financing activities:

During 2002, the Company issued 5,428,217 shares of its common stock for a subscription receivable of $4,625.

During 2004, the Company converted a loan with an affiliate for aggregate principal of $1,745,000 and accrued interest of $34,020 into shares of its common stock, issuing 677,919 shares, at approximately $2.62 per share in lieu of repayment of this obligation.

In December 2004, in conjunction with and as compensation for activities related to the December 2004 sale of equity securities, the Company issued warrants to purchase 483,701 shares of its common stock, with a purchase price of approximately $2.88 per share and an aggregate fair value of $14,400. All of these warrants were exercised by the holders prior to expiration in December 2011.

In conjunction with the merger and recapitalization of the Company effective February 11, 2005, the Company issued 11,911,357 shares of its common stock in exchange for all of the issued and outstanding shares of Chelsea Therapeutics, Inc. In addition, in conjunction with and as compensation for facilitating the merger, the Company issued warrants for the purchase of 105,516 shares of its common stock at an exercise price of $2.62 per share and an aggregate fair value of $26,700. As of December 31, 2011, all of these warrants had been exercised.

In February 2006, in conjunction with and as compensation for activities related to the February 2006 sale of equity securities, the Company issued warrants to purchase 716,666 shares of its common stock, with a purchase price of $3.30 per share and an aggregate fair value of approximately $705,000. Of these, warrants for the purchase of 543,766 remain unexercised and outstanding as of December 31, 2011 and, if they remain unexercised, will expire in February 2013.

In May 2006, in conjunction with and as compensation for activities related to a licensing agreement and under a Finder’s Agreement, the Company issued warrants to purchase 250,000 shares of its common stock, with an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that occurred in January 2007 and, accordingly, the Company recorded a charge based on the warrants’ fair value determined at January 2007 of $433,750. As of December 31, 2011, all of these warrants remain unexercised and outstanding and are scheduled to expire in May 2013.

See accompanying notes to consolidated financial statements.

F-11

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company, Basis of Presentation and Summary of Significant Accounting Policies

The Company

Chelsea Therapeutics International, Ltd. (“Chelsea Ltd.” or the “Company”) is a development stage pharmaceutical company focused on the acquisition, development and commercialization of innovative pharmaceutical products. Specifically, the Company is developing Northera™ (droxidopa), a novel therapeutic agent for the treatment of symptomatic neurogenic orthostatic hypotension, or NOH, in patients with primary autonomic failure, dopamine ß-hydroxylase, or DBH, deficiency, non-diabetic autonomic neuropathy, and the reduction of falls in patients with NOH associated with Parkinson’s disease, or PD, as well as other potentially norepinephrine related conditions and diseases including intradialytic hypotension, fibromyalgia and adult attention deficit hyperactivity disorder. The Company is also developing pharmaceuticals for multiple autoimmune disorders, including rheumatoid arthritis, psoriasis, inflammatory bowel disease and cancer. The Company’s operating subsidiary, Chelsea Therapeutics, Inc. (“Chelsea Inc.”), was incorporated in the State of Delaware on April 3, 2002 as Aspen Therapeutics, Inc., with the name changed in July 2004. In February 2005, Chelsea Inc. merged with a wholly-owned subsidiary of Chelsea Ltd.’s predecessor company, Ivory Capital Corporation (“Ivory”), a Colorado public company with no operations (the “Merger”). The Company reincorporated into the State of Delaware in July 2005, changing its name to Chelsea Therapeutics International, Ltd.

As a result of the Merger of Ivory and Chelsea Inc. in February 2005, and the reincorporation in Delaware in July 2005, Chelsea Ltd. is the reporting company and is the 100% owner of Chelsea Inc. The separate existence of Ivory ceased in connection with the Delaware reincorporation in July 2005. Except where the context provides otherwise, references to the “Company” and similar terms mean Ivory, Chelsea Ltd. and Chelsea Inc.

Basis of Presentation

Since inception, the Company has focused primarily on organizing and staffing, negotiating in-licensing agreements with partners, acquiring, developing and securing its proprietary technology, participating in regulatory discussions with the United States Food and Drug Administration, or FDA, the European Medicines Agency, or EMA and other regulatory agencies, undertaking preclinical trials and clinical trials of product candidates and, more recently, preparing for the planned commercial launch in the United States of one of its product candidates in anticipation of regulatory approval. The Company is a development stage company and has generated no revenue since inception.

The Company has sustained operating losses since its inception and expects that such losses could continue at least through the anticipated launch of Northera in 2012. Management plans to continue financing the Company’s operations, as necessary, with equity issuances, debt arrangements, strategic alliances or other arrangements of a collaborative nature. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs, delay or scale back certain activities including its commercialization program, or limit or cease operations in which event its business, financial condition and results of operations would be materially harmed.

For presentation purposes, the Company has restated all information contained in this report related to shares authorized, issued and outstanding and related disclosures of weighted average shares and loss per share to reflect the results of the Delaware reincorporation in July 2005 as if the Delaware reincorporation had occurred at the beginning of each of the periods presented.

F-12

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Consolidation

The accompanying financial statements present, on a consolidated basis, the financial position and results of operations of Chelsea Ltd. and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments. Management bases estimates on its historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and other highly-liquid investments with maturities of three months or less at the date of purchase.

Short-Term Investments

During 2011, the Company held short-term investments consisting of investments in certificates of deposit, or CD’s, with maturities of 26-weeks as of the dates of purchase, that were purchased through the Certificate of Deposit Account Registry Service, or CDARS^®. Investments are made through a single CDARS Network member and when a large deposit is made, that institution uses the CDARS service to place funds into CDs issued by other members of the CDARS Network. Investments occur in increments below the standard Federal Deposit Insurance Corporation, or FDIC, insurance maximum ($250,000) so that both principal and interest are eligible for FDIC insurance. The Company also held, at various points during 2011, short-term investments in commercial paper and corporate bonds, all of which had been redeemed as of December 31, 2011. In addition, the Company held additional CDARS investments during the year that were classified as cash equivalents based on their 13-week maturities at the dates of purchase.

During 2010, short-term investments consisted of investments in auction rate securities, or ARS. ARS are generally long-term debt instruments for which interest rates are reset through a Dutch auction process that occurs at pre-determined calendar intervals, generally each 28 or 35 days. All of the Company’s remaining investments in ARS during 2010 were classified as trading securities and were redeemed as planned under an executed settlement agreement on June 30, 2010. The Company elected the fair value option in accounting for its trading securities and, accordingly, accounted for such investments at their determined fair value, with changes in the fair value recorded in the statement of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and short-term investments. A portion of the Company’s cash has been maintained in non-interest bearing accounts at federally insured financial institutions that, under the

F-13

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transaction Account Guarantee Program, or TAGP, of the Federal Deposit Insurance Corporation, or FDIC, are fully insured until December 31, 2012. Previously, the Company maintained deposits in federally insured financial institutions that, under the Temporary Liquidity Guarantee Program, were fully insured through December 31, 2010 by the FDIC. In addition, the Company maintains deposits in commercial accounts in excess of federally insured amounts, primarily in fully liquid interest-bearing money market accounts, certificates of deposit, or CDs, money market funds and Treasury funds. However, while giving consideration to the expiration of the TAGP at December 31, 2012, management believes the Company is not exposed to significant credit risk for its cash and cash equivalents due to the financial position of the depository institutions in which those deposits are held and the nature of the investments.

Fair Value of Financial Instruments

The carrying value of the Company’s financial instruments, including cash and cash equivalents and accounts payable approximates fair value given their highly-liquid and short-term nature.

For financial assets and liabilities and any other assets and liabilities carried at fair value, the Company completes analyses of fair value and provides certain disclosures about fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under the fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value, the Company performs analyses on a consistent basis and designs its disclosures surrounding such analyses and the fair value determined at the balance sheet date to meet required presentation and disclosure requirements.

Property and Equipment

Property and equipment, which consists of furniture and fixtures, software and equipment, is stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the related assets. The useful life for all classes of assets other than leasehold improvements is three years. The useful life for leasehold improvements is the shorter of the expected life of the leasehold improvement or the remaining term of the lease.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value. Impairment, if any, is assessed using undiscounted cash flows. Through December 31, 2011, there has been no such impairment.

Research and Development

Research and development expenditures are expensed as incurred. The Company often contracts with third parties to facilitate, coordinate and perform agreed upon research and development activities. To ensure that research and development costs are expensed as incurred, the Company measures expense based on work performed for the underlying contract, typically utilizing a percentage-of-completion approach, and records prepaid assets or accrues expenses on a monthly basis for such activities based on the measurement of liability from expense recognition and the receipt of invoices.

F-14

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. In the event that the Company prepays fees for future milestones, it records the prepayment as a prepaid asset and amortizes the asset into research and development expense over the period of time the contracted research and development services are performed. Most fees are incurred throughout the contract period and are expensed based on their percentage of completion at a particular date.

These contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs including shipping and printing fees. Because these fees are incurred at various times during the contract term and they are used throughout the contract term, the Company records an estimated monthly expense allocation to recognize the fees during the contract period. Fees incurred to set up the clinical trial are expensed during the setup period.

Costs related to the acquisition of technology rights and patents for which development work is still in process are expensed as incurred and considered a component of research and development costs.

The Company has contracted with a third-party to manufacture commercial quantities of Northera prior to the date it anticipates that Northera will receive final regulatory marketing approval and might perform similar activities with other product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. As such, until final approval to market any of the Company’s product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development.

Loss per Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. For the periods presented, basic and diluted net loss per common share are identical as potentially dilutive securities from stock options and stock warrants would have an antidilutive effect since the Company incurred a net loss. The number of shares of common stock potentially issuable at December 31, 2011, 2010 and 2009 upon exercise or conversion that were not included in the computations of net loss per share were 8,687,452, 9,917,518 and 7,873,688, respectively.

Income Taxes

The Company determines deferred tax assets or liabilities based on the difference between the financial statement and the tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

The Company also recognizes, in its consolidated financial statements, the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position and provides explicit disclosure about the Company’s uncertainties related to the income tax position, including a detailed roll-forward of tax benefits taken that do qualify for financial statement recognition.

F-15

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

The Company accounts for its stock options using a fair value based method of accounting for stock options or similar equity instruments and requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on estimated fair values determined using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s statements of operations.

The fair value of each option award made to employees and directors during the years ended December 31, 2011, 2010 and 2009 was estimated on the date of grant using the Black-Scholes closed-form option valuation model utilizing the assumptions noted in the following table. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards. The Company estimated the expected life of the options granted based on anticipated exercises in future periods assuming the success of its business model as currently forecasted. The expected dividends reflect the Company’s current and expected future policy for dividends on its common stock. Effective January 1, 2011, the Company began relying exclusively on the trading and price history of the Company’s stock in order to determine the expected volatility given that, as of that date, there existed sufficient trading history to be able to determine historical volatility. Prior to that, the Company examined historical volatilities for industry peers closely related to the current status of its business, but with sufficient trading history to be able to determine volatility. The Company plans to continue to analyze the expected stock price volatility and expected term assumption at each grant date as more historical data for its common stock becomes available. As of January 1, 2011, taking into consideration hiring completed and planned by the Company and the potential impact of forfeitures given the roles of these newly filled positions, the Company estimated a forfeiture rate of 3%. Prior to 2011, given the Company’s low historical rate of attrition and the senior nature of the roles for a significant portion of the Company’s employees, the Company estimated that it would experience no forfeitures or that the rate of forfeiture would be immaterial to the recognition of compensation expense for those options outstanding. Due to the limited amount of historical data available to the Company, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from the Company’s assumptions. The table below summarizes the assumptions utilized in estimating the fair value of the stock options granted during the years ended December 31, 2011, 2010 and 2009:

	For the years ended December 31,
	2011		2010		2009
Weighted-average risk-free interest rate		1.83%		2.39%		1.75%
Weighted-average expected life of options		5 years		5 years		5 years
Expected dividend yield		0%		0%		0%
Weighted-average expected volatility		87.82%		93.95%		82.71%
Anticipated forfeiture rate		3%		n/a		n/a

The Company records compensation expense on a straight-line method over the vesting period of its options and recorded compensation expense of $2,648,741, $1,986,755 and $1,673,165 for the years ended December 31, 2011, 2010 and 2009, respectively, in conjunction with option grants made to employees and non-employee directors. As of December 31, 2011, the Company had total unrecognized compensation expense related to options granted to employees and non-employee directors of approximately $5.7 million, which will be

F-16

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognized over a weighted-average remaining period of two years. The expected future amortization expense for unrecognized compensation expense for stock option grants to employees and non-employee directors at December 31, 2011 is as follows:

Year ending December 31, 2012	$	2,225,708
Year ending December 31, 2013		1,892,672
Year ending December 31, 2014		1,410,621
Year ending December 31, 2015		150,287
	$	5,679,288

To date, option awards to consultants, advisors or other independent contractors have been granted with an exercise price equal to the market price of the Company’s stock at the date of the grant, have 10-year contractual terms and vest dependent upon the completion of performance commitments. As such, the value of stock options is measured at the then-current market value as of financial reporting dates and compensation cost is recognized for the net change in the fair value of the options for the reporting period, until such performance commitments are met. Once each commitment is met, the options that vest in association with that commitment are adjusted, for the last time, to the then-current fair value and compensation cost is recognized accordingly.

In determining the fair value of options granted to consultants, advisors and other independent contractors, the Company uses the Black-Scholes closed-form option valuation model in a manner consistent with its use in determining the fair value of options granted to employees and directors. However, the expected life of the options is based on the contractual lives as defined in agreements with the third parties. No such grants were made during 2011, 2010 or 2009.

2. Short-term Investments

As of December 31, 2011, the Company held short-term investments of $4.5 million consisting of investments in CD’s with maturities of 26-weeks as of the dates of purchase. Such investments, made at various times during 2011, were purchased through CDARS. During 2011, the Company also held short-term investments in commercial paper and corporate bonds that, at maturity, were fully redeemed.

During 2010, the Company liquidated its remaining investments in auction rate securities, or ARS, by exercising the ARS Rights received under a settlement agreement, finalized in the fourth quarter of 2008, with UBS Financial Services, Inc., or UBS. At January 1, 2010, the Company held total investments in ARS with a par value of approximately $11.45 million that were classified as trading securities and held at UBS. These ARS investments represented interests in collateralized debt obligations supported by pools of student loans and none were collateralized by mortgage, credit card or insurance securitizations. The ARS Rights provided the Company with the ability to sell the ARS, along with the ARS Rights, to UBS at the par value of the ARS no earlier than June 30, 2010 and were to expire on July 2, 2012. The ARS Rights were not transferable, not tradable, were not quoted or listed on any securities exchange or any other trading network, were recorded at fair value and were classified as short-term investments. Additionally, UBS also agreed that an affiliate would provide the Company with a no net-cost line of credit. Under the terms of the line of credit agreements, the Company received funds in December 2008 and March 2009 equivalent to 100% of the par value of the Company’s ARS investments, providing the Company with full liquidity for all its investments in ARS held with UBS. Upon exercise of the ARS Rights on June 30, 2010 and, after applying the proceeds of the redemptions of those ARS Rights, the Company had no remaining liability under the line of credit. During 2010, based upon analysis of fair value, the Company recorded no additional trading loss related to its trading securities or any corresponding adjustment to the fair value of its ARS or ARS Rights, prior to redemption on June 30, 2010.

F-17

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2009, the Company recorded a gain of approximately $4.1 million from the recovery of the other-than-temporary impairment that the Company had recorded against investments with an aggregate par value of $11.6 million, classified as available-for-sale, that were redeemed during 2009. Also, during the year ended December 31, 2009, the Company recorded a gain of approximately $0.2 million related to the increased value of the ARS Rights due to the additional funding received under the line of credit and the resulting elimination of any performance risk associated with the settlement. In addition, the Company recorded the recovery of $0.1 million of previously recorded other-than-temporary impairment losses related to $0.3 million in partial redemptions at par of its available-for-sale ARS investments during 2009.

3. Fair Value Measurements

In determining fair value, the Company utilizes techniques that optimize the use of observable inputs, when available, and minimize the use of unobservable inputs to the extent possible. At December 31, 2011, assets measured at fair value on a recurring basis consisted of cash and cash equivalents of approximately $41.1 million and short-term investments (see Note 2) of $4.5 million. Based on the short-term liquid nature of these assets, the fair value, determined using level 1 inputs, is equivalent to the recorded book value.

At December 31, 2010, with the redemption of the Company’s ARS investments (see Note 2), assets measured at fair value on a recurring basis consisted only of cash and cash equivalents of approximately $47.6 million. Based on the short-term liquid nature of these assets, the fair value, determined using level 1 inputs, was equivalent to the recorded book value.

4. Property and equipment:

Property and equipment consist of the following:

	December 31,
	2011			2010
Furniture and fixtures	$	283,231		$	186,119
Software		57,563			42,569
Leasehold improvements		39,909			24,142
Computer and office equipment		302,530			202,935
		683,233			455,765
Less—accumulated depreciation and amortization		(392,209	)		(275,744	)
	$	291,024		$	180,021

Depreciation and amortization expense was $116,465, $75,610 and $69,431 for the years ended December 31, 2011, 2010 and 2009, respectively.

5. Common Stock Offerings

On February 24, 2011, the Company raised gross proceeds of approximately $40.3 million through the sale of 10,062,500 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company’s 2011 shelf registration statement, amended pursuant to Rule 462(b), filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $63,950,000.

F-18

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Such registration statement became effective as of January 19, 2011. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $2.5 million, resulting in net proceeds to the Company of approximately $37.7 million.

On October 6, 2010, the Company raised gross proceeds of approximately $40.3 million through the sale of 8,214,286 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company’s shelf registration statement, as amended effective October 1, 2010 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, as filed with the SEC under which it may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $61,566,686. Such registration statement became effective as of August 20, 2009.

In July 2010, the Company filed the required documents and became eligible to use an at-the-market common equity sales program for the sale of up to 3,000,000 shares of common stock. In September 2010, the Company sold 634,500 shares of common stock under this program resulting in net proceeds, after expenses, of approximately $2.9 million, or $4.49 per share. These shares were offered pursuant to the Company’s 2009 shelf registration statement.

On March 5, 2010, the Company raised gross proceeds of approximately $18.2 million through the sale of 6,700,000 shares of its common stock plus warrants for the purchase of 2,345,000 shares of its common stock (the “2010 Offering”). These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. These shares were offered pursuant to the Company’s 2009 shelf registration statement. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.5 million.

There are no more securities available under the Company’s 2009 shelf registration.

On July 28, 2009, the Company raised gross proceeds of approximately $13.3 million through the sale of 3,325,000 shares of its common stock. These shares were offered pursuant to the Company’s prior shelf registration statement, as amended effective July 22, 2009 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, as filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $62,218,060. Such registration statement became effective as of October 11, 2007. In connection with the July 2009 offering, the Company received net proceeds, after deducting placement fees and offering expenses, of approximately $12.4 million.

On November 8, 2007, the Company raised gross proceeds of approximately $48.9 million through the sale of 7,388,172 shares of its common stock in a registered direct offering. These shares were offered pursuant to the Company’s 2007 shelf registration statement. In connection with this offering, the Company paid commissions and recorded or accrued other offering-related costs of approximately $3.2 million.

There are no more securities available under the Company’s 2007 shelf registration.

On March 22, 2007, the Company raised gross proceeds of approximately $12.5 million through the sale of 2,648,306 shares of its common stock plus warrants for the purchase of 794,492 shares of its common stock

F-19

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(the “2007 Placement”). The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. The warrants are redeemable at par value at the Company’s option in the event that the volume weighted-average closing price of the Company’s common stock is greater than $12.00 per share for any 20 consecutive trading days provided the Company gives 60 business days’ written notice to the holders and simultaneously call all warrants on the same terms. Under the terms of the 2007 Placement, the Company agreed to and filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on August 7, 2007. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.0 million in cash.

On February 13, 2006, the Company raised gross proceeds of approximately $21.5 million through the sale of 7,166,666 shares of its common stock plus warrants for the purchase of 2,149,999 shares of its common stock (the “2006 Placement”). The allocated aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares, for cash only, at $4.20 each and were exercisable in whole at any time, or in part from time to time, for five years from the date of issuance. (See Note 10) The warrants were redeemable at par value at the Company’s option in the event that the Company’s volume weighted-average closing bid price of its common stock was greater than $9.00 per share for any 20 consecutive trading days provided that the Company gave 30 business days’ written notice to the holders and simultaneously called all warrants on the same terms. In connection with the 2006 Placement, the Company paid commissions and other offering-related costs of approximately $1.6 million in cash and issued warrants to the placement agent for the purchase of 716,666 shares of the Company’s common stock with an exercise price of $3.30 per share, or 110% of the price of the shares sold in the offering and an aggregate fair value of approximately $0.7 million. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. Under the terms of the 2006 Placement, the Company agreed to and filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on March 29, 2006.

In December 2004, Chelsea, Inc. raised gross proceeds of approximately $14.5 million through the sale of 5,532,994 shares of its common stock (the “2004 Placement”). The amount raised includes the conversion of a $1.7 million stockholder loan along with accrued interest, for which a total of 677,919 shares of common stock were issued. In connection with this offering, Chelsea, Inc. paid commissions and other offering-related costs of approximately $1.0 million in cash and issued warrants to the placement agent for the purchase of 483,701 shares of its common stock with an aggregate fair value of approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance.

6. Commitments

Facility Lease

On October 21, 2010, the Company entered into an amendment to its lease agreement, dated March 7, 2008, to increase the office space in Charlotte, North Carolina that serves as its corporate headquarters. Occupancy of the additional space occurred in March 2011. Occupancy for the originally leased space occurred in May 2008. Upon taking delivery of the newly added space and upon expiration of a free rental period of six months from the date of delivery anticipated, or September 2011, the monthly payments increased by approximately $8,000 per month to a total of approximately $29,000. The lease, as amended, expires on or about March 11, 2016 and calls

F-20

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

for annual rent increases of 3%. A security deposit of approximately $38,000 is being held by the lessor in conjunction with the lease. In addition, the lease initially provided an option to rent additional adjacent space. Such option expired in November 2009. The future aggregate minimum lease payments under non-cancellable operating leases are approximately $1.6 million through the lease expiration date of March 2016.

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $339,963, $202,267 and $248,404, respectively.

License Agreements

In March 2004, the Company entered into a license agreement with Dr. M. Gopal Nair, Ph.D., of the University of South Alabama College of Medicine, for the rights to use, produce, distribute and market products derived from an invention by Dr. Nair, claimed in US Patent # 5,912,251, entitled “metabolically inert anti-inflammatory and antitumor antifolates”, designated by the Company as CH-1504 and related compounds. The license provides the Company exclusive, worldwide (excluding India) rights for CH-1504 and related compounds. The Company made an upfront payment in May 2004 of $150,000 and milestone payments as required by the agreement of $100,000 each in March 2006 and 2005. In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, in settlement of the $150,000 annual milestone payment liability. In March 2008, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, in settlement of the 2008 anniversary milestone payment. In April 2009, the Company made the 2009 anniversary milestone payment of $150,000. In September 2010, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. The Company is obligated to pay royalties under the agreement until the later of the expiration of the applicable patent or the applicable last date of market exclusivity after the first commercial sale, on a country-by-country basis. There are no minimum royalties required under the agreement. The Company is also obligated to make future potential milestone payments based on the achievement of specific development and regulatory approval milestones. Based on the Company’s current development plans for compounds licensed under this agreement, approximately $1.5 million of payments may become due if specific milestones are achieved, subject to the Company’s right to terminate the license agreement. In addition, should the Company enter into an out-licensing agreement, such payments could be offset by revenue received from the sub-licensee.

In May 2006, the Company entered into an agreement with Dainippon Sumitomo Pharma Co., Ltd. (“DSP”) for a worldwide, exclusive, sub-licensable license and rights to certain intellectual property and proprietary information (the “DSP Agreement”) relating to L-threo-3,4-dihydroxyphenylserine (“L-DOPS” or “droxidopa”) including, but not limited to all information, formulations, materials, data, drawings, sketches, designs, testing and test results, records and regulatory documentation. As consideration for these rights, the Company paid DSP $100,000 and issued 63,131 shares of its common stock, with a value of approximately $4.35 per share, or $274,621. As additional consideration, the Company agreed to pay DSP and/or its designees (1) royalties on the sales should any compound be approved for commercial sale, and (2) milestone payments, payable upon achievement of milestones as defined in the DSP Agreement. In February 2008, the Company made a milestone payment under the DSP Agreement of $500,000 related to patient dosing in a Phase III study. In December 2011, the Company made a milestone payment under the DSP Agreement of $750,000 related to submission of an NDA to the FDA and has remaining potential future milestone payments, subject to the Company’s right to terminate the DSP Agreement, totaling $2.5 million. The Company and DSP also initiated, and the Company agreed to fund, activities focused on modifying the manufacturing capabilities of DSP in order to expand

F-21

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

capacity and comply with regulations and requirements of the FDA. Based on work performed by DSP as of December 31, 2011, the Company had recorded expense of approximately $3.1 million and had a remaining liability of approximately $60,000 at December 31, 2011.

In conjunction with and as consideration for activities related to the execution of the DSP Agreement, the Company entered into a Finder’s Agreement with Paramount BioCapital, Inc. (“Paramount”). In May 2006, pursuant to the Finder’s Agreement, the Company issued warrants for the purchase of 250,000 shares of its common stock at an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that occurred in January 2007 and, accordingly, the Company recorded a charge for the fair value of the warrants at January 2007 of $433,750. The Company utilized the Black-Scholes-Merton valuation model for estimating the fair value of the warrants at the date the condition lapsed, based on a risk-free interest rate of 4.79%, an expected life of three years, an expected dividend yield of 0%, an expected volatility of 66.01% and no estimated forfeitures. As additional consideration, the Company agreed to (1) make future milestone payments to Paramount, upon achievement of milestones as defined in the Finder’s Agreement, (2) pay royalties on sales should any licensed compound become available for commercial sale, and (3) compensate a stated third-party consultant for services rendered in the evaluation of the transaction with DSP. The Company has remaining potential future milestone payments under the Finder’s Agreement of $150,000.

The amount expended under these agreements and charged to research and development expense was $750,000 during the year ended December 31, 2011, $100,000 during the year ended December 31, 2010 and $150,000 during the year ended December 31, 2009.

Development and Commercialization Agreement

Effective May 2006, the Company entered into a development and commercialization agreement (the “Development Agreement”) with Active Biotech AB (“AB”) to co-develop and commercialize the I-3D portfolio of orally active, dihydroorotate dehydrogenase (“DHODH”) inhibiting compounds for the treatment of autoimmune diseases and transplant rejection. Under the terms of the Development Agreement, an initial payment of $1.0 million was made to AB at the time of the Development Agreement with such funds utilized to cover the initial costs of research and development efforts jointly approved by both parties. At December 31, 2006, the Company had expensed the entire $1.0 million payment and expensed additional costs of $0.3 million. During 2007, the Company expensed costs of $0.6 million under the program related to costs of research and development. During 2008, the Company and AB ceased joint discovery efforts on this portfolio.

In April 2008, the Company and AB entered into a termination and assignment agreement (the “Termination Agreement”), whereby AB discontinued its participation in the I-3D co-development program and assigned its entire right, title and interest in the portfolio to the Company in exchange for royalties on future sales. The Termination Agreement also eliminated the Company’s obligation related to payment of potential future development milestones under the Development Agreement. The Company has recorded no costs related to this program during 2011, 2010 or 2009.

Contract Research and Manufacturing Purchase Obligations

The Company often contracts with third parties to facilitate, coordinate and perform agreed upon research and development and manufacturing activities. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue its research and manufacturing activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

F-22

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company has contracted with a third party for the manufacture of commercial quantities of Northera prior to the date it anticipates that Northera will receive final marketing approval and might perform similar activities for other of its product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. This risk notwithstanding, the Company initiated such activities with its primary supplier of active pharmaceutical ingredient of Northera in December 2010 and had incurred expenses of approximately $3.8 million and approximately $1.9 million related to these activities during 2011 and 2010, respectively. Until final approval to market any of the Company’s product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development. The Company intends to continue such activities during 2012 in order to build pre-launch inventories of Northera prior to final governmental approval. In addition, in October 2011, the Company committed to the purchase of active pharmaceutical ingredient from DSP to be used in the production of commercial inventory in preparation for the market launch of Northera in the United States. The value of this obligation is approximately $7.2 million. A small initial shipment of this material was delivered in the first quarter of 2012. Although the remainder of this material could be shipped at any time within a two-year period following the completion of its manufacture, it is not anticipated to be shipped prior to the commercial launch of Northera in the United States.

Commitments under research and development programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $8.3 million at December 31, 2011.

Other Contractual Obligations

During 2011, the Company contracted with various third parties to facilitate, coordinate and perform agreed upon commercialization support activities in anticipation of the planned launch of Northera in the United States in 2012. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue these activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

Business activities being performed under these contracts include, but are not limited to, market research, marketing and advertising planning and development, contracted Medical Science Liaison professionals, sales territory mapping, publication planning, sales force recruiting, sales operations support and planning, messaging and website development, public relations and information technology support and planning.

Commitments under these programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $12.2 million at December 31, 2011.

7. Stockholders’ Equity

On June 1, 2010, the Company’s Certificate of Incorporation was amended to increase the number of authorized shares of capital stock from 65,000,000 shares to 105,000,000 shares and to increase the number of authorized shares of common stock from 60,000,000 shares to 100,000,000 shares.

Preferred Stock

The Company’s Certificate of Incorporation provides that the Board of Directors of the Company has the authority to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more classes or series and to

F-23

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders.

As of December 31, 2011, no shares of preferred stock were issued and outstanding.

Common Stock

In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In May 2006, the Company issued 63,131 shares of its common stock as consideration for a product license agreement with DSP (see Note 6), with a value of approximately $4.35 per share, or $274,621.

During April 2004, the Company issued 471,816 common shares as consideration in the product license agreement (see Note 6) and 478,330 shares were sold to Simon Pedder, the Company’s President and Chief Executive Officer under the terms of his employment agreement. These shares were valued at what was, at that time, Chelsea’s common stock’s estimated aggregate fair value of $402 and $408, respectively, with such nominal values reflecting an asset-based valuation methodology.

During 2002, the Company issued 5,428,217 shares of its common stock for a subscription receivable of $4,625.

Warrants

At December 31, 2011 and 2010, the Company had outstanding warrants to purchase 2,875,022 and 5,255,588 shares, respectively, of the Company’s common stock. Warrants outstanding as of December 31, 2011 were issued at prices ranging from $2.79 to $5.66 per share.

On March 5, 2010, in conjunction with the 2010 Offering, the Company issued warrants for the purchase of 2,345,000 shares of its common stock. These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. At December 31, 2011, warrants for the purchase of 1,286,764 shares of the Company’s stock remained outstanding.

In March 2007, in conjunction with the 2007 Placement (see Note 5), the Company issued warrants for the purchase of 794,492 shares of its common stock. The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance.

F-24

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The warrants are redeemable at par value at the Company’s option in the event that the volume weighted-average closing price of the Company’s common stock is greater than $12.00 per share for any 20 consecutive trading days provided the Company gives 60 business days’ written notice to the holders and simultaneously call all warrants on the same terms. At December 31, 2011, all of these warrants remained outstanding.

In May 2006, in conjunction with and as compensation for activities related to the product license agreement with DSP (see Note 6) and under a finder’s agreement, the Company issued warrants to purchase 250,000 shares of its common stock, with an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that did not occur until January 2007. As such, in January 2007, the Company recorded a charge based on the warrants’ aggregate fair value at that date of $433,750. The warrants permit the holders to purchase the underlying common shares at $4.31 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants remained outstanding.

In February 2006, in conjunction with the 2006 Placement (see Note 5), the Company issued warrants for the purchase of 2,149,999 shares of its common stock. The allocated aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares at $4.20 each and were exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. In addition, these warrants were redeemable at the Company’s option in the event that the volume weighted average closing bid price of its common stock for any 20 consecutive trading days was at least $9.00 per share. These warrants were scheduled to expire in February 2011 and, prior to that date, warrants for the purchase of 2,131,399 shares of common stock had been exercised by the holders. The remaining warrants for the purchase of 18,600 share of common stock remained unexercised and expired in February 2011.

The Company also issued warrants to its placement agent for the 2006 Placement to purchase 716,666 shares of its common stock with an exercise price of 110% of the purchase price per share based on shares sold in the 2006 Placement, or $3.30 per share and an aggregate fair value of approximately $705,000. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, warrants for the purchase of 543,766 shares of the Company’s tock remained outstanding.

In February 2005, in conjunction with and as compensation for facilitating the Merger (see Note 1), the Company issued warrants for the purchase of 105,516 shares of its common stock at an exercise price of approximately $2.62 per share. The aggregate fair value of these warrants was approximately $26,700. These warrants were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants had been exercised by the holders.

In December 2004, as compensation for fundraising efforts related to the 2004 Placement (see Note 5), the Company issued warrants to purchase 483,701 shares of its common stock, with a purchase price of 110% of the purchase price per share based on shares sold in the 2004 Placement, or, as converted under terms of the Merger Agreement, approximately $2.89 per share. The aggregate fair value of these warrants was approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. These warrants were scheduled to expire in December 2011 and, prior to that date, all had been exercised by the holders.

F-25

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exercise of Common Stock Warrants

During January and February 2011, various warrant holders exercised their rights to purchase an aggregate of 1,993,444 shares of the common stock of the Company, with an exercise price of $4.20 per share, pursuant to cash exercises whereby the Company received proceeds of approximately $8.4 million. In addition, in December 2011, a warrant holder exercised its right to purchase 37,277 shares of the common stock of the Company, with an exercise price of approximately $2.89 per share, pursuant to a cash exercise whereby the Company received proceeds of approximately $0.1 million.

During 2011, various warrant holders exercised the rights to purchase 331,245 shares of the common stock of the Company, with exercise prices of $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 149,950 shares of its common stock to the various warrant holders based on the excess of the market price over the exercise price on the dates of exercise.

During 2010, a warrant holder exercised the right to purchase 26,379 shares of the common stock of the Company, with an exercise price of $2.62 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 14,298 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise. Also in 2010, a warrant holder exercised the right to purchase 1,058,236 shares of the common stock of the Company, with an exercise price of $2.79 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 661,930 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise.

During 2010, various warrant holders exercised their rights to purchase an aggregate of 65,555 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to cash exercises whereby the Company recorded proceeds of approximately $275,000.

During 2009, various warrant holders exercised rights to purchase 119,691 shares of the common stock of the Company, with an average exercise price of approximately $3.27 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 63,927 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 100,487 shares of the common stock of the Company, with an average exercise price of approximately $2.91 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 57,983 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 11,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded proceeds of $47,040.

During 2007, various warrant holders, on various dates, exercised rights to purchase 116,596 shares of the common stock of the Company, with an average exercise price of approximately $2.90 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 68,136 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

F-26

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2007, various warrant holders, on various dates, exercised rights to purchase 61,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded cash proceeds, net of expenses, of $252,040.

During 2006, various warrant holders, on various dates, exercised rights to purchase 30,422 shares of the Company’s common stock, with an exercise price of approximately $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 15,461 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

Stock Options

The Company has a stock incentive plan (the “Plan”) under which incentive stock options for 7,400,000 shares of the Company’s common stock may be granted. Grants under the Plan may be made to employees (including officers), directors, consultants, advisors or other independent contractors who provide services to the Company or its subsidiary.

Options awards to employees and directors are granted with an exercise price equal to or greater than the market price of the Company’s stock at the date of the grant and generally have 10-year contractual terms.

During the years ended December 31, 2011, 2010 and 2009, the Company granted stock options to employees and non-employee directors for the purchase of 1,190,500, 861,000 and 938,290 shares of its common stock, respectively. The grants made during the year ended December 31, 2011 had a weighted-average exercise price of $6.91 per share, a weighted average grant date fair value of $4.60 per share and an aggregate intrinsic value at December 31, 2011 of approximately $0.1 million. The grants made during the year ended December 31, 2010 had a weighted-average exercise price of $3.10 per share, a weighted average grant date fair value of $2.24 per share and an aggregate intrinsic value at December 31, 2011 of approximately $1.7 million. The grants made during the year ended December 31, 2009 had a weighted-average exercise price of $1.99 per share, a weighted average grant date fair value of $1.33 per share and an aggregate intrinsic value at December 31, 2011 of approximately $2.9 million. The aggregate intrinsic value is calculated as the difference between the exercise prices of the underlying awards and the quoted closing price of the common stock of the Company as of December 31, 2011 for those awards that have an exercise price below the quoted closing price. Each option granted to employees and non-employee directors during 2011, 2010 and 2009 vests as to 25% of the shares on each of the first, second, third and fourth anniversary of the vesting commencement date. Following the vesting periods, options are exercisable by employees until the earlier of 90 days after the employee’s termination with the Company or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions. Following the vesting periods, options are exercisable by non-employee directors until the earlier of 180 days after they cease to be a member of the Board of Directors or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions.

F-27

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the Company’s stock option activity and related information since inception is as follows:

	Available For Grant			Activity/ Balance			Wtd Avg Exercise Price
Establish 2002 Option Plan		1,085,648			—		$	—
Balance at December 31, 2002		1,085,648			—
2003 Activity		—			—		$	—
Balance at December 31, 2003		1,085,648			—
Cancel 2002 Stock Option Plan		(1,085,648	)		—		$	—
Establish 2004 Stock Option Plan		1,085,648			—		$	—
2004 Option grants		(363,835	)		363,835		$	0.56
Balance at December 31, 2004		721,813			363,835
2005 Plan Amendment		410,784			—
2005 Option grants		(761,451	)		761,451		$	2.66
2005 Cancellations		58,683			(58,683	)	$	2.62
2005 Exercises		—			(14,663	)	$	0.07
Balance at December 31, 2005		429,829			1,051,940
2006 Plan Amendments		1,148,568			—
2006 Option grants		(668,085	)		668,085		$	3.61
2006 Cancellations		8,802			(8,802	)	$	2.62
2006 Exercises		—			(78,683	)	$	0.06
Balance at December 31, 2006		919,114			1,632,540
2007 Plan Amendments		1,500,000			—
2007 Option grants		(665,500	)		665,500		$	5.72
2007 Exercises		—			(17,868	)	$	0.88
Balance at December 31, 2007		1,753,614			2,280,172
2008 Option grants		(837,500	)		837,500		$	6.11
2008 Cancellations		148,802			(148,802	)	$	4.95
2008 Exercises		—			(94,230	)	$	0.63
Balance at December 31, 2008		1,064,916			2,874,640
2009 Plan Amendments		855,000			—
2009 Option grants		(938,290	)		938,290		$	1.99
Balance at December 31, 2009		981,626			3,812,930
2010 Plan Amendments		1,200,000			—
2010 Option grants		(861,000	)		861,000		$	3.10
2010 Cancellations		12,000			(12,000	)	$	2.93
Balance at December 31, 2010		1,332,626			4,661,930
2011 Plan Amendments		1,200,000			—
2011 Option grants		(1,190,500	)		1,190,500		$	6.91
2011 Cancellations		40,000			(40,000	)	$	5.07
Balance at December 31, 2011		1,382,126			5,812,430

As of December 31, 2011, there were 5,812,430 options outstanding under the Plan with a weighted average remaining contractual life of 6.4 years, a weighted average grant date fair value of $2.50 per share and an aggregate intrinsic value at December 31, 2011 of approximately $8.2 million. Also, options for 3,340,660 shares

F-28

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

had vested and were exercisable at December 31, 2011 with a weighted average remaining contractual life of 5.1 years, a weighted average exercise price of $3.86 per share, a weighted average grant date fair value of $1.92 per share and an aggregate intrinsic value at December 31, 2011 of approximately $5.3 million. During the years ended December 31, 2011, 2010 and 2009, no options were exercised. The weighted average exercise price for all vested and unvested options outstanding as of December 31, 2011, 2010 and 2009 is approximately $4.32, $3.66 and $3.79 per share, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following:

	December 31,
	2011		2010
Common stock warrants outstanding		2,875,022		3,260,944
Common stock options outstanding		5,812,430		4,661,930
Common stock options available for future grants		1,382,126		1,332,626
		10,069,578		9,255,500

At December 31, 2011, the Company had warrants for the purchase of 2,080,530 shares of its common stock outstanding for which the warrant holders could elect a net share settlement. Based on the market price as of December 31, 2011 and the exercise prices of the warrants that ranged from $2.79 to $4.31 per share, the Company would have issued, in net share settlements, 820,881 shares of its common stock in settlement of these warrants.

8. Income Taxes

All of the Company’s tax positions meet the more-likely-than-not recognition threshold, presuming that such tax position would be examined by a relevant taxing authority that has full knowledge of all relevant information. As such, a tabular presentation of those tax benefits is not presented.

From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although, historically, there have been no such assessments and the Company believes that any potential future assessments would be minimal and immaterial to the Company’s results of operations and financial position. In the event the Company receives an assessment for interest and/or penalties, it would be classified in the consolidated financial statements as general and administrative expense.

The Company and its subsidiaries file tax returns in the United States and a small number of state jurisdictions. The statute of limitations for examination of the Company’s returns has expired for years prior to 2008. There are no income tax examinations currently in process nor has the Company been subject to examination since inception. The material jurisdictions subject to potential examination by taxing authorities for open tax years primarily include the United States and the State of North Carolina.

F-29

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the deferred tax assets and the valuation allowance are shown below. The state carryforwards are shown net of federal tax.

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforward—Federal	$	56,534,714		$	41,803,101
Net operating loss carryforward—State		7,648,814			5,655,714
Licensing costs		1,105,848			816,348
Compensation costs and deferred stock compensation		1,271,272			871,234
Inventory purchases prior to commercialization		2,228,108			746,910
Other temporary differences		(269,087	)		(105,334	)
		68,519,669			49,787,973
Less valuation allowance		(68,519,669	)		(49,787,973	)
	$	—		$	—

The reasons for the difference between actual income tax benefit and the amount computed by applying the statutory federal income tax rate to the losses before income tax benefit are as follows:

	December 31,
	2011			2010
Rate reconciliation:
Statutory federal rate		-34.00	%		-34.00	%
State income tax rate (net of federal benefit)		-4.60	%		-4.60	%
Certain non-deductible expenses		1.47	%		1.41	%
Effect of increase in valuation allowance		37.13	%		37.19	%
Effective tax rate		0.00	%		0.00	%

Given the Company’s history of incurring operating losses, the Company’s ability to realize its deferred tax assets is not considered more likely than not. As a result, a valuation allowance equal to the total deferred tax assets has been established. The valuation allowance as of December 31, 2011 and 2010 was approximately $68.5 million and $49.8 million, respectively. The increase in the valuation allowance during 2011 is primarily related to the increase in net operating losses.

At December 31, 2011, the Company had potentially utilizable federal and state net operating loss carryforwards of approximately $166.3 million. The net operating loss carryforwards will be begin to expire in various amounts for federal and state tax purposes through 2025 and 2020, respectively.

Under limitations imposed by Internal Revenue Code Section 382, or IRC§382, certain potential changes in ownership of the Company, which may be outside the Company’s knowledge or control, may restrict future utilization of these NOL carryforwards. During 2011, the Company undertook, with the assistance of its tax advisors, a detailed study in order to determine any potential IRC§382 limitations on its ability to utilize, in future periods, its federal NOL carryforwards. This detailed study resulted in a determination that there had been two ownership changes previously, as defined by IRC§382, limiting the Company’s NOLs available for federal tax purposes to approximately $104.9 million at December 31, 2011. However, all NOLs would be available for

F-30

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

use prior to their expiration, resulting in no adjustment to the tax provision and disclosure at December 31, 2011. In future years, after utilizing the $104.9 million of NOLs currently available and any unrestricted future tax losses generated, the use of the remainder of the Company’s NOLs at December 31, 2011 would be limited to approximately $8.9 million annually for years from 2012 to 2013, approximately $7.6 million for 2014, approximately $4.1 million annually for the years from 2015 to 2022 and the remainder in 2023. Any portion of an NOL limited by IRC§382 not used in a given year can be carried forward to subsequent years. Any NOLs generated during periods since the date of the most recent ownership change and those that might be generated in any future periods can be used without restriction unless a future ownership change occurs.

Although a detailed study has not been completed, similar limitations might be expected under Internal Revenue Code Section 383, or IRC§383, on the utilization of research and development tax credits that may be available to the Company. The Company is currently unable to fully estimate the impact of any such available research and development tax credits and any related IRC§383 limitations nor has it undertaken the steps necessary to fully estimate the potential benefits that may be available to it from the utilization of research and development tax credits in future periods.

In November 2010, the Company received proceeds of approximately $488,000 for two grants awarded under the Qualifying Therapeutic Discovery Project Credit. These grants were awarded to the Company for research and development efforts related to its two late-stage clinical programs and were classified in the consolidated financial statements as a reduction in research and development expense.

9. Savings and Retirement Plan

During 2005, the Company established a savings and retirement plan under Section 401(k) of the Internal Revenue Code that allows eligible employees to annually contribute a portion of their annual salary to the plan. The Company matches such contributions up to a maximum of 4% of the employee’s compensation, as defined. For the years ended December 31, 2011, 2010 and 2009, the Company made contributions of approximately $211,000, $143,000 and $120,000, respectively.

10. Subsequent Events

Common Stock Offerings

On January 11, 2012, the Company raised gross proceeds of approximately $23.7 million through the sale of 4,989,275 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company’s 2011 shelf registration statement, as amended effective January 5, 2012 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $63,950,000. Such registration statement became effective as of January 19, 2011. There are no more securities available under the Company’s 2011 shelf registration. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.6 million, resulting in net proceeds to the Company of approximately $22.1 million.

On February 8, 2012, the Company amended its shelf registration statement, originally filed on January 26, 2012, with the SEC, under which the Company may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $100,000,000. Such registration statement, as amended, became effective as of February 9, 2012.

F-31

CHELSEA THERAPEUTICS INTERNATIONAL, LTD. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Grant of Stock Options

Through March 7, 2012, the Company granted options for the purchase of 1,309,000 shares of its common stock to employees and non-employee directors. These grants had a weighted average exercise price of $4.60 per share, a weighted average fair value of $3.09 per share and were granted at an exercise price equal to or greater than the closing market value of the Company’s stock on the dates of grant.

Exercise of Common Stock Warrants

Through March 7, 2012, a warrant holder exercised the right to purchase 57,000 shares of the common stock of the Company, with an exercise price of $3.30 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 17,148 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise.

F-32

EX-10.3

EXHIBIT 10.3

CHELSEA THERAPEUTICS INTERNATIONAL, LTD.

2004 STOCK PLAN, AS AMENDED

Approved by the Board: January 25, 2012

1. Purpose. The purpose of 2004 Stock Plan, as amended (the “Plan”) of Chelsea Therapeutics International, Ltd. (the “Company”) is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, directors and consultants. Incentives may consist of opportunities to purchase or receive shares of Common Stock, $0.0001 par value, of the Company (“Common Stock”) on terms determined under this Plan, including options granted hereunder that do not qualify as “incentive stock options” (“ISOs”) or (Nonstatutory Stock Options, or “NSOs”).

2. Administration. The Plan shall be administered by a committee of the Board of Directors of the Company (the “Committee”). The Committee shall consist of not less than two directors of the Company who shall be appointed from time to time by the board of directors of the Company. Each member of the Committee shall be a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the “Exchange Act”), and an “outside director” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Committee shall have complete authority to determine all provisions of all Incentives awarded under the Plan (as consistent with the terms of the Plan), to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan. The Committee’s decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants. No member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentives granted under the Plan. The Committee will also have the authority under the Plan to amend or modify the terms of any outstanding Incentives in any manner; provided, however, that the amended or modified terms are permitted by the Plan as then in effect and that any recipient of an Incentive adversely affected by such amended or modified terms has consented to such amendment or modification. No amendment or modification to an Incentive, however, whether pursuant to this Section 2 or any other provision of the Plan, will be deemed to be a re-grant of such Incentive for purposes of this Plan (notwithstanding that such amendment or modification may be deemed to be a new grant of an incentive stock option, as such term is defined in Section 422 of the Code, under the Code). If at any time there is no Committee, then for purposes of the Plan the term “Committee” shall mean the Company’s Board of Directors.

3. Eligible Participants. Employees of the Company or its subsidiaries (including officers and employees of the Company or its subsidiaries), directors and consultants, advisors or other independent contractors who provide services to the Company or its subsidiaries (including members of the Company’s scientific advisory board) shall become eligible to receive Incentives under the Plan when designated by the Committee. Participants may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation by officers of the Company or its subsidiaries and any performance objectives relating to such officers must be approved by the Committee. Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated.

4. Types of Incentives. Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory stock options (Section 6); (b) stock appreciation rights (“SARs”) (Section 7); (c) stock awards (Section 8); (d) restricted stock (Section 8); and (e) performance shares (Section 9). Only employees of the Company shall be entitled to receive incentive stock options under Section 422 of the Code.

5. Shares Subject to the Plan.

5.1. Number of Shares. Subject to adjustment as provided in Section 11.6, the number of shares of Common Stock which may be issued under the Plan is 7,400,000 shares of Common Stock. Of such aggregate number of shares of Common Stock that may be issued under the Plan, the maximum number of shares that may be issued as incentive stock options under Section 422 of the Code is 7,400,000. Any shares of Common Stock available for issuance as incentive stock options may be alternatively issued as other types of Incentives under the Plan. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentives will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan.

5.2. Cancellation. To the extent that cash in lieu of shares of Common Stock is delivered upon the exercise of an SAR pursuant to Section 7.4, the Company shall be deemed, for purposes of applying the limitation on the number of shares, to have issued the greater of the number of shares of Common Stock which it was entitled to issue upon such exercise or on the exercise of any related option. In the event that a stock option or SAR granted hereunder expires or is terminated or canceled unexercised or unvested as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options, SARs or otherwise. In the event that shares of Common Stock are issued as restricted stock or pursuant to a stock award and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan, either as restricted stock, pursuant to stock awards or otherwise. Shares of Common Stock which are withheld to pay the exercise price of an option and/or any related withholding obligations shall again be available for issuance under the Plan. The Committee may also determine to cancel, and agree to the cancellation of, stock options in order to make a participant eligible for the grant of a stock option at a lower price than the option to be canceled.

6. Stock Options. A stock option is a right to purchase shares of Common Stock from the Company. The Committee may designate whether an option is to be considered an incentive stock option or a non-statutory stock option. To the extent that any incentive stock option granted under the Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such incentive stock option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a non-statutory stock option. Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions:

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6.1. Price. The option price per share shall be determined by the Committee, subject to adjustment under Section 11.6, subject to Section 6.5(e).

6.2. Number. The number of shares of Common Stock subject to the option shall be determined by the Committee, subject to adjustment as provided in Section 11.6. The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises a SAR if any SAR is granted in conjunction with or related to the stock option.

6.3. Duration and Time for Exercise. Subject to earlier termination as provided in Section 11.4 and except for incentive stock options which shall be subject to the provisions of Section 6.5, the term of each stock option shall be determined by the Committee but shall not exceed ten years from the date of grant. Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant. The Committee may accelerate the exercisability of any stock option.

6.4. Manner of Exercise. Subject to the conditions contained in this Plan and in the agreement with the recipient evidencing such option, a stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The exercise price shall be payable (a) in United States dollars upon exercise of the option and may be paid by cash; uncertified or certified check; bank draft; (b) at the discretion of the Committee, by delivery of shares of Common Stock that are already owned by the participant in payment of all or any part of the exercise price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; or (c) at the discretion of the Committee, by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the exercise price and/or any related withholding tax obligations, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may be authorized from time to time by the Committee. The shares of Common Stock delivered by the participant pursuant to Section 6.4(b) must have been held by the participant for a period of not less than six months prior to the exercise of the option, unless otherwise determined by the Committee. Prior to the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a shareholder. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such stock options as to which there is a record date preceding the date the participant becomes the holder of record of such shares, except as the Committee may determine in its discretion.

6.5. Stock Options. Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options:

(a) To the extent that the aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which incentive stock options (as such term is defined in Section 422 of the Code) are exercisable for the first time by any participant during any calendar year (under the Plan and any other incentive stock option plans of the Company or any subsidiary or

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parent corporation of the Company) shall exceed $100,000, such excess portion of the incentive stock options will be treated as Non-Statutory Stock Options; provided that this provision shall have no force or effect to the extent that its inclusion in the Plan is not necessary for the Incentive to qualify as incentive stock options pursuant to Section 422 of the Code. The determination will be made by taking incentive stock options into account in the order in which they were granted.

(b) Any incentive stock option certificate authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as incentive stock options.

(c) All incentive stock options must be granted within ten years from the earlier of the date on which this Plan was adopted by board of directors or the date this Plan was approved by the Company’s shareholders.

(d) Unless sooner exercised, all incentive stock options shall expire no later than 10 years after the date of grant. No incentive stock option may be exercisable after ten (10) years from its date of grant (or five (5) years from its date of grant if, at the time the incentive stock option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

(e) The exercise price for stock options shall be not less than 100% of the Fair Market Value of the Common Stock subject thereto on the date of grant; provided that the exercise price shall be 110% of the Fair Market Value for incentive stock options if, at the time granted, the participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company.

7. Stock Appreciation Rights. An SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, cash or any combination thereof, the amount of which is determined pursuant to the formula set forth in Section 7.4. An SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option. Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions:

7.1. Number; Exercise Price. Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 11.6. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR pertains shall be reduced in the same proportion that the holder of the option exercises the related stock option. The exercise price of an SAR will be determined by the Committee, in its discretion, at the date of grant but may not be less than 100% of the Fair Market Value of the shares of Common Stock subject thereto on the date of grant.

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7.2. Duration. Subject to earlier termination as provided in Section 11.4, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the date of grant. Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is exercisable. The Committee may in its discretion accelerate the exercisability of any SAR.

7.3. Exercise. An SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise. Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.4.

7.4. Payment. Subject to the right of the Committee to deliver cash in lieu of shares of Common Stock (which, as it pertains to officers and directors of the Company, shall comply with all requirements of the Exchange Act), the number of shares of Common Stock which shall be issuable upon the exercise of an SAR shall be determined by dividing:

(a) the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the “appreciation” shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of an SAR related to a stock option, the exercise price of the shares of Common Stock under the stock option or (2) in the case of an SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 11.6); by

(b) the Fair Market Value of a share of Common Stock on the exercise date.

In lieu of issuing shares of Common Stock upon the exercise of a SAR, the Committee may elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date of any or all of the shares which would otherwise be issuable. No fractional shares of Common Stock shall be issued upon the exercise of an SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise.

8. Stock Awards and Restricted Stock. A stock award consists of the transfer by the Company to a participant of shares of Common Stock, without other payment therefor, as additional compensation for services to the Company. The participant receiving a stock award will have all voting, dividend, liquidation and other rights with respect to the shares of Common Stock issued to a participant as a stock award under this Section 8 upon the participant becoming the holder of record of such shares. A share of restricted stock consists of shares of Common Stock which are sold or

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transferred by the Company to a participant at a price determined by the Committee (which price shall be at least equal to the minimum price required by applicable law for the issuance of a share of Common Stock) and subject to restrictions on their sale or other transfer by the participant, which restrictions and conditions may be determined by the Committee as long as such restrictions and conditions are not inconsistent with the terms of the Plan. The transfer of Common Stock pursuant to stock awards and the transfer and sale of restricted stock shall be subject to the following terms and conditions:

8.1. Number of Shares. The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock shall be determined by the Committee.

8.2. Sale Price. The Committee shall determine the price, if any, at which shares of restricted stock shall be sold or granted to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale.

8.3. Restrictions. All shares of restricted stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation any or all of the following:

(a) a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise), provided that such prohibition shall not lapse faster than 1/3 per year from the date of grant;

(b) a requirement that the holder of shares of restricted stock forfeit, or (in the case of shares sold to a participant) resell back to the Company at his or her cost, all or a part of such shares in the event of termination of his or her employment or consulting engagement during any period in which such shares are subject to restrictions; or

(c) such other conditions or restrictions as the Committee may deem advisable.

8.4. Escrow. In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock shall enter into an agreement with the Company setting forth the conditions of the grant. Shares of restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend in substantially the following form:

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The transferability of this certificate and the shares of Common Stock represented by it are subject to the terms and conditions (including conditions of forfeiture) contained in the 2004 Stock Plan of Chelsea Therapeutics International, Ltd., (the “Company”), as amended from time to time, and an agreement entered into between the registered owner and the Company. A copy of the 2004 Stock Plan, as amended from time to time, and the agreement is on file in the office of the secretary of the Company.

8.5. End of Restrictions. Subject to Section 11.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant’s legal representative, beneficiary or heir.

8.6. Shareholder. Subject to the terms and conditions of the Plan, each participant receiving restricted stock shall have all the rights of a shareholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares. Dividends paid in cash or property other than Common Stock with respect to shares of restricted stock shall be paid to the participant currently.

9. Performance Shares. A performance share consists of an award which shall be paid in shares of Common Stock, as described below. The grant of a performance share shall be subject to such terms and conditions as the Committee deems appropriate, including the following:

9.1. Performance Objectives. Each performance share will be subject to performance objectives for the Company or one of its operating units to be achieved by the participant before the end of a specified period. The number of performance shares granted shall be determined by the Committee and may be subject to such terms and conditions, as the Committee shall determine. If the performance objectives are achieved, each participant will be paid in shares of Common Stock or cash as determined by the Committee. If such objectives are not met, each grant of performance shares may provide for lesser payments in accordance with formulas established in the award.

9.2. Not Shareholder. The grant of performance shares to a participant shall not create any rights in such participant as a shareholder of the Company, until the payment of shares of Common Stock with respect to an award.

9.3. No Adjustments. No adjustment shall be made in performance shares granted on account of cash dividends which may be paid or other rights which may be issued to the holders of Common Stock prior to the end of any period for which performance objectives were established.

9.4. Expiration of Performance Share. If any participant’s employment or consulting engagement with the Company is terminated for any reason other than normal retirement, death or disability prior to the achievement of the participant’s stated performance objectives, all the participant’s rights on the performance shares shall expire and terminate unless otherwise determined by the Committee. In the event of termination of employment or consulting by reason of death, disability, or normal retirement, the Committee, in its own discretion may determine what portions, if any, of the performance shares should be paid to the participant.

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9.5 Vesting. In no event will performance shares vest less than one year after the date of grant.

10. Change of Control.

10.1 Change in Control. For purposes of this Section 10, a “Change in Control” of the Company will mean the following:

(a) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to a person or entity that is not controlled by the Company;

(b) the approval by the shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company;

(c) any person not a shareholder of the Company on the date of the Plan becomes after the effective date of the Plan the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (i) 20% or more, but not 50% or more, of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the Continuing Directors (as defined below), or (ii) 50% or more of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuing Directors); provided that a traditional institutional or venture capital financing transaction shall be excluded from this definition; or

(d) a merger or consolidation to which the Company is a party if the shareholders of the Company immediately prior to the effective date of such merger or consolidation have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (i) 50% or more, but less than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Continuing Directors, or (ii) less than 50% of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuing Directors).

10.2 Continuing Directors. For purposes of this Section 10, “Continuing Directors” of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Continuing Directors (either by specific vote or by approval of the Company’s proxy statement in which such individual is named as a nominee for director without objection to such nomination).

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10.3 Acceleration of Incentives. Unless otherwise resolved by the Committee in its sole discretion at such time, if a Change in Control of the Company occurs whereby the acquiring entity or successor to the Company does not agree to assume the Incentives or replace them with substantially equivalent incentive awards (as determined by the Committee in its reasonable discretion), then (a) all outstanding options and SARs will vest and will become immediately exercisable in full and, if not exercised on the date of the Change of Control, will terminate on such date regardless of whether the participant to whom such options or SARs have been granted remains in the employ or service of the Company or any subsidiary of the Company or any acquiring entity or successor to the Company; (b) the restrictions on all shares of restricted stock awards shall lapse immediately; and (c) all performance shares criteria shall be deemed to be met and payment made immediately.

10.4 Cash Payment for Options. If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an option at the time of grant or at any time after the grant of an option, and without the consent of any participant affected thereby, may determine that:

(a) some or all participants holding outstanding options will receive, with respect to some or all of the shares of Common Stock subject to such options, as of the effective date of any such Change in Control of the Company, cash in an amount equal to the excess of the Fair Market Value of such shares immediately prior to the effective date of such Change in Control of the Company over the exercise price per share of such options; and

(b) any options as to which, as of the effective date of any such Change in Control, the Fair Market Value of the shares of Common Stock subject to such options is less than or equal to the exercise price per share of such options, shall terminate as of the effective date of any such Change in Control.

If the Committee makes a determination as set forth in subparagraph (a) of this Section 10.4, then as of the effective date of any such Change in Control of the Company such options will terminate as to such shares and the participants formerly holding such options will only have the right to receive such cash payment(s). If the Committee makes a determination as set forth in subparagraph (b) of this Section 10.4, then as of the effective date of any such Change in Control of the Company such options will terminate, become void and expire as to all unexercised shares of Common Stock subject to such options on such date, and the participants formerly holding such options will have no further rights with respect to such options.

11. General.

11.1. Effective Date. The Plan will become effective upon approval by the Company’s board of directors.

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11.2. Duration. The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed. No Incentives may be granted under the Plan after the earlier of the tenth anniversary of the date of the adoption of the Plan or the date the Plan is approved by the shareholders of the Company.

11.3. Non-transferability of Incentives. Except in the event of the holder’s death, by will or the laws of descent and distribution to the limited extent provided in the Plan or the Incentive, unless approved by the Committee, no stock option, SAR, restricted stock or performance award may be transferred, pledged or assigned by the holder thereof, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise, and the Company shall not be required to recognize any attempted assignment of such rights by any participant. During a participant’s lifetime, an Incentive may be exercised only by him or her or by his or her guardian or legal representative.

11.4. Effect of Termination or Death. In the event that a participant ceases to be an employee of or consultant to the Company, or the participants’ other service with the Company is terminated, for any reason, including death, any Incentives may be exercised or shall expire at such times as may be determined by the Committee in its sole discretion in the agreement evidencing an Incentive. Notwithstanding the other provisions of this Section 11.4, upon a participant’s termination of employment or other service with the Company and all subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause options and SARs (or any part thereof) then held by such participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or service and Restricted Stock Awards, Performance Shares and Stock Awards then held by such participant to vest and/or continue to vest or become free of transfer restrictions, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no Incentive may remain exercisable or continue to vest beyond its expiration date. Any incentive stock option that remains unexercised more than one (1) year following termination of employment by reason of death or disability or more than three (3) months following termination for any reason other than death or disability will thereafter be deemed to be a Non-Statutory Stock Option.

11.5. Additional Conditions. Notwithstanding anything in this Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his or her own account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any

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securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to any Incentives granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), and any applicable state or foreign securities laws or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities laws or other restrictions. The Committee may restrict the rights of participants to the extent necessary to comply with Section 16(b) of the Exchange Act, the Internal Revenue Code or any other applicable law or regulation. The grant of an Incentive award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

11.6. Adjustment. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to restrictions, options or achievements of performance shares, shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment.

11.7. Incentive Plans and Agreements. Except in the case of stock awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee. The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as incentive stock options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options.

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11.8. Withholding.

(a) The Company shall have the right to (i) withhold and deduct from any payments made under the Plan or from future wages of the participant (or from other amounts that may be due and owing to the participant from the Company or a subsidiary of the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all foreign, federal, state and local withholding and employment-related tax requirements attributable to an Incentive, or (ii) require the participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive. At any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR, the participant may satisfy this obligation in whole or in part by electing (the “Election”) to have the Company withhold from the distribution shares of Common Stock having a value up to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (“Tax Date”).

(b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive. An Election is irrevocable.

(c) If a participant is an officer or director of the Company within the meaning of Section 16 of the Exchange Act, then an Election is subject to the following additional restrictions:

(1) No Election shall be effective for a Tax Date which occurs within six months of the grant or exercise of the award, except that this limitation shall not apply in the event death or disability of the participant occurs prior to the expiration of the six-month period.

(2) The Election must be made either six months prior to the Tax Date or must be made during a period beginning on the third business day following the date of release for publication of the Company’s quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date.

(d) If the option granted to a participant hereunder is an incentive stock option, and if the participant sells or otherwise disposes of any of the shares of Common Stock acquired pursuant to the incentive stock option on or before the later of (1) the date two years after the date of grant, or (2) the date one year after the date of exercise, the participant shall immediately notify the Company in writing of such disposition. The participant agrees that the participant may be subject to income tax withholding by the Company on the compensation income recognized by the participant from the early disposition by payment in cash or out of the current earnings paid to the participant.

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11.9. No Continued Employment, Engagement or Right to Corporate Assets. No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company for any period of time or any right to continue his or her present or any other rate of compensation. Nothing contained in the Plan shall be construed as giving an employee, a consultant, such persons’ beneficiaries or any other person any interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person.

11.10. Deferral Permitted. Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive. Payment may be deferred at the option of the participant if provided in the Incentive.

11.11. No Repricing or Cash Buyouts. No Incentive may be repriced after its issuance, whether by an adjustment to the individual or aggregate exercise or purchase price, the aggregate amount of equity securities subject to the Incentive, or otherwise. No Incentive that is not payable in cash may be exchanged with the Company for cash, whether by cashless net exercise or otherwise.

11.12. Amendment of the Plan. The Board may amend, suspend or discontinue the Plan at any time; provided, however, that no amendments to the Plan will be effective without approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to Section 422 of the Code, the regulations promulgated thereunder or the rules of any stock exchange or Nasdaq or similar regulatory body. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive without the consent of the affected participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 2, 10 and 11 of the Plan.

11.13. Definition of Fair Market Value. For purposes of this Plan, the “Fair Market Value” of a share of Common Stock at a specified date shall, unless otherwise expressly provided in this Plan, be the amount which the Committee or the board of directors of the Company determines in good faith in the exercise of its reasonable discretion to be 100% of the fair market value of such a share as of the date in question; provided, however, that notwithstanding the foregoing, if such shares are listed on a U.S. securities exchange or are quoted on the Nasdaq National Market System or Nasdaq SmallCap Stock Market (“Nasdaq”), then Fair Market Value shall be determined by reference to the last sale price of a share of Common Stock on such U.S. securities exchange or Nasdaq on the applicable date. If such U.S. securities exchange or Nasdaq is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on such U.S. securities exchange or Nasdaq.

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11.14. Breach of Confidentiality, Assignment of Inventions, or Non-Compete Agreements. Notwithstanding anything in the Plan to the contrary, in the event that a participant materially breaches the terms of any confidentiality, assignment of inventions, or non-compete agreement entered into with the Company or any subsidiary of the Company, whether such breach occurs before or after termination of such participant’s employment or other service with the Company or any subsidiary, the Committee in its sole discretion may immediately terminate all rights of the participant under the Plan and any agreements evidencing an Incentive then held by the participant without notice of any kind.

11.15. Governing Law. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of North Carolina, notwithstanding the conflicts of laws principles of any jurisdictions.

11.16. Successors and Assigns. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the participants in the Plan.

Amended by the Board on January 25, 2012

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EX-10.6

EXHIBIT 10.6

EMPLOYMENT AGREEMENT

AGREEMENT (the “Agreement”), dated as of March 2, 2012, by and between Chelsea Therapeutics International, Ltd., a Delaware corporation with principal executive offices at 3530 Toringdon Way, Unit 200, Charlotte, North Carolina 28277 (the “Company”), and DR. SIMON PEDDER, residing at 1347 Shinnecock Lane, Fort Mill, South Carolina 29707 (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Company desires to continue to employ the Executive as President and Chief Executive Officer of the Company, and the Executive desires to continue to serve the Company in those capacities, upon the terms and subject to the conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:

1. Employment.

(a) Services. The Executive will be employed by the Company as its President and Chief Executive Officer. The Executive will report to the Board of Directors of the Company (the “Board”) and shall perform such duties as are consistent with his position as President and Chief Executive Officer (the “Services”). The Executive agrees to perform such Services faithfully, to devote substantially all of his working time, attention and energies to the business of the Company, and while he remains employed, not to engage in any other business activity that is in conflict with his duties and obligations to the Company.

(b) Acceptance. Executive hereby accepts such employment and agrees to render the Services.

2. Term.

Subject to earlier termination in accordance with Section 9 of this Agreement, the Executive’s employment under this Agreement shall commence as of January 1, 2012 or such other date as may be agreed to by the Parties (the “Effective Date”) and shall continue for a term of three (3) years (the “Initial Term”). The Term may be extended for additional one (1) year periods upon the mutual written agreement of the Executive and the Board. In the event that either party determines not to extend the Term, such party will provide the other party with at least 90 days prior written notice. (The Initial Term and any extensions thereof are hereinafter referred to together as the “Term.”)

3. Best Efforts; Place of Performance.

(a) The Executive shall devote substantially all of his business time, attention and energies to the business and affairs of the Company and shall use his best efforts to advance the best interests of the Company and shall not during the Term be actively engaged in any other

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business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that will interfere with the performance by the Executive of his duties hereunder or the Executive’s availability to perform such duties or that will adversely affect, or negatively reflect upon, the Company.

(b) The duties to be performed by the Executive hereunder shall be performed in North Carolina or at such place as may be agreed upon by the Executive and the Board.

4. Directorship. The Company shall use its best efforts to cause the Executive to be elected as a member of its Board throughout the Term and shall include him in the management slate for election as a director at every stockholders meeting during the Term at which his term as a director would otherwise expire. The Executive agrees to accept election, and to serve during the Term, as director of the Company, without any compensation therefor other than as specified in this Agreement.

5. Compensation. As full compensation for the performance by the Executive of his duties under this Agreement, the Company shall pay the Executive as follows:

(a) Base Salary. The Company shall pay Executive a salary (the “Base Salary”) equal to Four Hundred Ninety-One Thousand Dollars ($491,000) per year. Payment shall be made in accordance with the Company’s normal payroll practices. The amount of increase reflected in this Base Salary as compared to the salary rate being paid immediately prior to the Term shall be paid retroactively to January 1, 2012. Employee’s Base Salary shall be subject to annual review by the Board and may be adjusted in the Board’s discretion.

(b) Incentive Bonus. The Executive shall participate in the Company’s annual incentive bonus program for executive officers. Under the incentive bonus program, the Executive shall be entitled to an additional annual bonus (the “Incentive Bonus”) in an amount targeted at 50% of his Base Salary if the fiscal year corporate goals set by the Board or Compensation Committee and communicated to the Executive are achieved at 100% as determined by the Board in its reasonable discretion. The Board or Compensation Committee has the authority to increase the Incentive Bonus to up to 75.0% of the Executive’s Base Salary if the fiscal year corporate goals are exceeded or based on exemplary performance during the fiscal year by Executive. The Incentive Bonus shall be payable either as a lump-sum payment or in installments as determined by the Board or Compensation Committee in its sole discretion. In either case, the entire amount must be paid no later than the March 15 of the calendar year immediately following the calendar year in which the fiscal year ends. The Board or Compensation Committee shall annually review the Incentive Bonus to determine whether an increase in the amount thereof is warranted.

(c) Option Grants and Equity Awards.

Executive shall be entitled to participate in any stock option or equity compensation plan or program maintained by the Company and shall receive grants and awards under such plans or programs commensurate with his position as President and Chief Executive Officer.

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(d) Withholding. The Company shall withhold all applicable federal, state and local taxes and social security and such other amounts as may be required by law or authorized by Executive from all amounts payable to the Executive under this Section 5.

(e) Expenses. The Company shall reimburse the Executive for all normal, usual and necessary business expenses incurred by the Executive in furtherance of the business and affairs of the Company, including reasonable travel and entertainment, upon timely receipt by the Company of appropriate vouchers or other proof of the Executive’s expenditures and otherwise in accordance with any expense reimbursement policy as may from time to time be adopted by the Company.

(f) Other Benefits. The Executive shall be entitled to all rights and benefits for which he shall be eligible under any benefit or other plans (including, without limitation, dental, medical, medical reimbursement and hospital plans, pension plans, employee stock purchase plans, profit sharing plans, bonus plans and other so-called “fringe” benefits) as the Company shall make available to its senior executives from time to time. In addition, the Company shall reimburse the Executive for any calendar year for his reasonable medical licensing fees and other professional dues incurred during the Term provided that the Executive remains in the employ of the Company. The Company shall reimburse Executive for such fees and dues promptly upon receipt of appropriate proof of the Executive’s expenditures. To receive reimbursement, Executive must provide proof of the expenditures to the Company within 45 days of the date on which the expense was incurred. The Company’s reimbursement must be paid not later than 30 days after receipt of proof of the expenditures. The amount of such fees and dues eligible for reimbursement during a calendar year shall not affect the amount of such fees and dues eligible for reimbursement during any other calendar year. The Executive’s right to reimbursement of medical licensing fees and other professional dues shall not be subject to liquidation or exchange for another benefit.

(g) Vacation. The Executive shall, during the Term, be entitled to a vacation of five (5) weeks per annum, in addition to holidays observed by the Company. The Executive shall not be entitled to carry any vacation forward to the next year of employment and shall not receive any compensation for unused vacation days upon termination of employment or otherwise.

6. Confidential Information and Inventions.

(a) The Executive recognizes and acknowledges that in the course of his duties he is likely to receive confidential or proprietary information owned by the Company, its affiliates or third parties with whom the Company or any such affiliates has an obligation of confidentiality. Accordingly, during and after the Term, the Executive agrees to keep confidential and not disclose or make accessible to any other person or use for any other purpose other than in connection with the fulfillment of his duties under this Agreement, any Confidential and Proprietary Information (as defined below) owned by, or received by or on behalf of, the Company or any of its affiliates. “Confidential and Proprietary Information” shall include, but shall not be limited to, confidential or proprietary scientific or technical information, data, formulas and related concepts, business plans (both current and under development), client lists, promotion and marketing programs, trade secrets, or any other confidential or proprietary

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business information relating to development programs, costs, revenues, marketing, investments, sales activities, promotions, credit and financial data, manufacturing processes, financing methods, non-public personnel information, plans or the business and affairs of the Company or of any affiliate or client of the Company. The Executive expressly acknowledges the trade secret status of the Confidential and Proprietary Information and that the Confidential and Proprietary Information constitutes a protectable business interest of the Company. The Executive agrees: (i) not to use any such Confidential and Proprietary Information for himself or others; and (ii) not to take any Company material or reproductions (including but not limited to writings, correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof from the Company’s offices at any time during his employment by the Company, except as required in the execution of the Executive’s duties to the Company. The Executive agrees to return immediately all Company material and reproductions (including but not limited, to writings, correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof in his possession to the Company upon request and in any event immediately upon termination of employment.

(b) Except with prior written authorization by the Company, the Executive agrees not to disclose or publish any of the Confidential and Proprietary Information, or any confidential, scientific, technical or business information of any other party to whom the Company or any of its affiliates owes an obligation of confidence, at any time during or after his employment with the Company.

(c) The Executive agrees that all inventions, discoveries, improvements and patentable or copyrightable works (“Inventions”) initiated, conceived or made by him, either alone or in conjunction with others, during the Term shall be the sole property of the Company to the maximum extent permitted by applicable law and, to the extent permitted by law, shall be “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C.A., Section 101). The Company shall be the sole owner of all patents, copyrights, trade secret rights, and other intellectual property or other rights in connection therewith. The Executive hereby assigns to the Company all right, title and interest he may have or acquire in all such Inventions; provided, however, that the Board may in its sole discretion agree to waive the Company’s rights pursuant to this Section 6(c) with respect to any Invention that is not directly or indirectly related to the Company’s business. The Executive further agrees to assist the Company in every proper way (but at the Company’s expense) to obtain and from time to time enforce patents, copyrights or other rights on such Inventions in any and all countries, and to that end the Executive will execute all documents necessary:

(i) to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and

(ii) to defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters patent, copyright or other analogous protection.

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(d) The Executive acknowledges that while performing the services under this Agreement, the Executive may locate, identify and/or evaluate patented or patentable inventions having commercial potential in the fields of pharmacy, pharmaceutical, biotechnology, healthcare, technology and other fields which may be of potential interest to the Company or one of its affiliates (the “Third Party Inventions”). The Executive understands, acknowledges and agrees that all rights to, interests in or opportunities regarding, all Third-Party Inventions identified by the Company, any of its affiliates or either of the foregoing persons’ officers, directors, employees (including the Executive), agents or consultants during the Employment Term shall be and remain the sole and exclusive property of the Company or such affiliate and the Executive shall have no rights whatsoever to such Third-Party Inventions and will not pursue for himself or for others any transaction relating to the Third-Party Inventions which is not on behalf of the Company.

(e) The provisions of this Section 6 shall survive any termination of this Agreement.

7. Non-Competition, Non-Solicitation and Non-Disparagegment.

(a) While Executive is employed by the Company and for a period of twelve (12) months after the termination or cessation of such employment by either party for any reason whatsoever, Executive will not, directly on his own behalf or indirectly for or in conjunction with others:

(i) Within the Restricted Territory (as defined in subsection (b) below), engage in any business or enterprise (whether as owner, partner, officer, director, employee, consultant, investor, lender or otherwise) in competition with the Company, where such business or enterprise develops, manufactures, markets, licenses or sells any products designed to treat immunological diseases, including but not limited to rheumatoid arthritis (“RA”), cancer, psoriasis, and other anti-inflammatory conditions or any other conditions including but not limited to neurogenic orthostatic hypotension, intradialytic hypotension and fibromyalgia that compete with the products being sold or developed by the Company at the time of Executive’s termination (collectively, the “Competitive Products”) in any management or executive role or in any position (whether as an employee, contractor or consultant) in which Executive or a third party would benefit from Executive’s use or disclosure of the Company’s Confidential Information;

(ii) Within the Restricted Territory, solicit or accept employment or be retained by an individual or entity who, at any time during the term of this Agreement, was an agent, client, licensee, or customer of the Company, where the Executive would have any management or executive role or be in any position (whether as an employee, contractor or consultant) in which the Executive or a third party would benefit from Executive’s use or disclosure of the Company’s Confidential Information;

(iii) Within the Restricted Territory, become financially interested in an enterprise that is engaged, as a substantial part of its operations, in selling the Competitive Products; provided, however, that nothing in this Agreement shall be construed to prevent Executive from owning less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are listed on a national securities exchange or quoted by the NASDAQ automated quotation system;

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(iv) Solicit or accept the business of any customer of the Company whom Executive solicited or serviced for the Company during the last twelve (12) months of Executive’s employment with the Company; and/or

(v) Solicit or induce any employee, consultant, or independent contractor of the Company to terminate the employment or contracting relationship with the Company.

(b) For purposes of this Agreement, the “Restricted Territory” means the United States of America and Canada.

(c) During the Term of this Agreement and at all times thereafter, the Company and Executive each further agree that neither party shall directly or indirectly disparage the name or reputation of the other party or any of its affiliates, including but not limited to, any officer, director, employee or shareholder of the Company or any of its affiliates.

(d) If Executive breaches any provisions of this Agreement or there is a threatened breach, then, in addition to any other rights which the Company may have, the Company shall (i) be entitled to injunctive relief to enforce these restrictions and (ii) have the right to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments and other benefits (collectively, the “Benefits”) derived or received by Executive as a result of any transaction constituting a breach of any of the provisions of Section 7 and Executive hereby agrees to account for and pay over such Benefits to the Company.

(e) Each of the rights and remedies enumerated in Section 7(d) shall be independent of the others and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity. If any of the covenants contained in this Section 7, or any part of any of them, is hereafter construed or adjudicated to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants or rights or remedies which shall be given full effect without regard to the invalid portions. If any of the covenants contained in this Section 7 is held to be invalid or unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and in its reduced form such provision shall then be enforceable. No such holding of invalidity or unenforceability in one jurisdiction shall bar or in any way affect the Company’s right to the relief provided in this Section 7 or otherwise in the courts of any other state or jurisdiction within the geographical scope of such covenants as to breaches of such covenants in such other respective states or jurisdictions, such covenants being, for this purpose, severable into diverse and independent covenants.

(f) The provisions of this Section 7 shall survive any termination of this Agreement.

8. Representations and Warranties by the Executive.

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The Executive hereby represents and warrants to the Company as follows:

(a) Neither the execution or delivery of this Agreement nor the performance by the Executive of his duties and other obligations hereunder violate or will violate any statute, law, determination or award, or conflict with or constitute a default or breach of any covenant or obligation under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which the Executive is a party or by which he is bound.

(b) The Executive has the full right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of the Executive enforceable against him in accordance with its terms. No approvals or consents of any persons or entities are required for the Executive to execute and deliver this Agreement or perform his duties and other obligations hereunder.

9. Termination. The Executive’s employment hereunder shall terminate immediately upon the Executive’s death. In addition, this Agreement may be terminated as follows:

(a) The Executive’s employment hereunder may be terminated by the Board for Cause. “Cause” shall be determined by a majority of the Board (excluding Executive) and shall mean:

(i) The willful failure, disregard or refusal by the Executive to perform his duties hereunder;

(ii) Any willful, intentional or grossly negligent act by the Executive having the effect of injuring, in a material way (whether financial or otherwise), the business or reputation of the Company or any of its affiliates, including but not limited to, any officer, director, executive or shareholder of the Company or any of its affiliates.

(iii) Willful misconduct by the Executive in respect of the duties or obligations of the Executive under this Agreement, including, without limitation, insubordination with respect to lawful directions received by the Executive from the Board;

(iv) The Executive’s conviction of any felony (including entry of a nolo contendere or no contest plea);

(v) The determination by the Company, after a reasonable and good-faith investigation by the Company following a written allegation by another employee of the Company, that the Executive engaged in some form of harassment prohibited by law (including, without limitation, discrimination based on race, color, religion, sex, national origin, age, disability or other status protected by law), unless the Executive’s actions were specifically directed by the Board;

(vi) Any misappropriation or embezzlement of the property of the Company or its affiliates (whether or not a misdemeanor or felony);

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(vii) Breach by the Executive of any of the provisions of Sections 6, 7 or 8 of this Agreement; and

(viii) Breach by the Executive of any provision of this Agreement other than those contained in Sections 6, 7 or 8 that, if capable of being cured, is not cured by the Executive within thirty (30) days after notice thereof is given to the Executive by the Company.

(b) The Executive’s employment hereunder may be terminated by the Board due to the Executive’s Disability. For purposes of this Agreement, a termination for “Disability” shall occur (i) when the Board has provided a written termination notice to the Executive supported by a written statement from a reputable independent physician to the effect that the Executive shall have become so physically or mentally incapacitated as to be unable to resume, within the ensuing twelve (12) months, his employment hereunder by reason of physical or mental illness or injury with or without a reasonable accommodation, or (ii) upon rendering of a written termination notice by the Board after the Executive has been unable to substantially perform his duties hereunder for 90 or more consecutive days, or more than 120 days in any consecutive twelve month period, by reason of any physical or mental illness or injury with or without a reasonable accommodation. For purposes of this Section 9(b), the Executive agrees to make himself available and to cooperate in any reasonable examination by a reputable independent physician retained by the Company.

(c) The Executive’s employment hereunder may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive’s position, duties, responsibilities, titles or offices as described herein; (ii) any material reduction by the Corporation of the Executive’s duties and responsibilities; (iii) any material reduction by the Corporation of the Executive’s compensation or benefits payable hereunder (it being understood that a reduction of benefits applicable to all employees of the Corporation, including the Executive, shall not be deemed a reduction of the Executive’s compensation package for purposes of this definition); or (iv) the occurrence of any of the events in clauses (i), (ii) or (iii) of this Section 9(c) after the occurrence of a Change of Control (as defined in Section 10 of this Agreement).

Notwithstanding the foregoing, Executive shall not have Good Reason for termination unless Executive gives written notice of termination for Good Reason within fifteen (15) days after the event giving rise to Good Reason occurs, and the Company does not correct the action or failure to act that constitutes the grounds for Good Reason, as set forth in Executive’s notice of termination, within thirty (30) days after the date on which Executive gives written notice of termination.

10. Compensation upon Termination.

(a) If the Executive’s employment terminates as a result of his death or Disability, the Company shall pay to the Executive or to the Executive’s estate, as applicable, his Base Salary for a period of one (1) year following the date of termination and any earned but unpaid Incentive Bonus, plus any unpaid reimbursement amounts for business expenses, medical licensing fees, or professional dues incurred through the date of his Death or Disability. The Company shall pay the Base Salary in equal bi-monthly installments, beginning within fifteen (15) days immediately following his termination. The Company shall pay any other amounts

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due pursuant to this paragraph at the same time the amount would have been paid had the Executive remained employed by the Company. Payments to be made under this paragraph are hereby designated and shall at all times be treated as a series of separate payments and not a single payment pursuant to Treasury Regulation § 1.409A-2(b)(2)(iii). Except as provided under the terms of the Company’s employee benefit plans (as generally applied to executive officers, the Executive shall have no further entitlement to any other compensation or benefits from the Company.

(b) If the Executive’s employment is terminated by the Board for Cause, then the Company shall pay to the Executive his Base Salary through the date of his termination and any expense reimbursement amounts owed through the date of termination. Except as provided under the terms of the Company’s employee benefit plans (as generally applied to executive officers ), the Executive shall have no further entitlement to any other compensation or benefits from the Company.

(c) If the Executive’s employment is terminated by the Company (or its successor) other than for Cause (and not due to Executive’s death or Disability) or by the Executive for Good Reason, if (i) such termination results in Employee incurring a “separation from service” as defined under Treasury Regulation 1.409A-1(h); (ii) Employee has not breached this Agreement; and (c) Employee signs and does not revoke within 60 days after the termination date a general release of claims against the Company related to his employment (the “Release”), in form and substance satisfactory to the Company:

(i) the Company (or its successor, as applicable) shall:

(1) Continue to pay to the Executive an amount equal to his Base Salary until the end of the Term or for a period of one year following such termination, whichever is longer, and any earned but unpaid Incentive Bonus, all minus any federal, state and local payroll taxes and other withholdings legally required or properly requested by Employee, plus any unpaid reimbursement amounts for business expenses, medical licensing fees, or professional dues incurred through the date of termination; and

(2) Pay to the Executive an amount equal to COBRA premiums that would be paid by the Executive each month for continuation coverage for Executive and his spouse and dependents for a period of twelve (12) months, but only to the extent such COBRA premiums exceed the premiums or contributions the Executive would have paid for such coverage as an active employee of the Company.

The Company shall pay the Base Salary in equal bi-monthly installments, beginning within fifteen (15) days immediately following his termination. Notwithstanding the foregoing, any amount that would be payable within the 60-day period following Executive’s termination if Executive signed and did not revoke the general release on the day of his termination shall be delayed until the 61^st day following Executive’s termination. The Company shall pay the COBRA payment on the first day of the month immediately following the month to which it relates. Each such COBRA payment shall be treated as taxable wages to the Executive. The Company shall pay any other amounts due pursuant to this paragraph at the same time the amount would have been paid had the Executive remained employed by the Company;

9

(ii) On the termination date,

(1) All of Executive’s stock options, stock awards, and other grants of equity compensation shall be accelerated and deemed to have vested as of the termination date (without regard to any installment exercise limitations set forth in the applicable award or grant agreements); and

(2) All of Executive’s stock options, stock awards, and other grants of equity compensation that are awarded during the Term and that are subject to exercise shall remain exercisable until the earlier of (x) 180 days following Executive’s termination, or (y) the latest date upon which the award or grant could have expired by its original terms if the Executive had remained employed; and

(iii) Except as provided under the terms of the Company’s employee benefit plans (including but not limited to 401(k), group insurance and equity compensation plans), the Executive shall have no further entitlement to any other compensation or benefits from the Company.

(d) Unless otherwise agreed by the Company and the Executive, if the Executive’s employment is terminated by the Company (or its successor) within 90 days of the occurrence of a Change of Control and on the date of the Change of Control the fair market value of the Company’s Common Stock, in the aggregate, as reported by NASDAQ Capital Markets or otherwise as determined in good faith by the Board on the date of such Change of Control, is less than $50,000,000, then the Company (or its successor, as applicable) shall continue to pay to the Executive an amount equal to his Base Salary, plus any unpaid reimbursement amounts for business expenses, medical licensing fees, or professional dues incurred through the date of termination and shall pay to the Executive an amount equal to COBRA premiums that would be paid by the Executive each month for continuation coverage for Executive and his spouse and dependents, but only to the extent such COBRA premiums exceed the premiums or contributions the Executive would have paid for such coverage as an active employee of the Company, until the end of the term or for a period of one year following such termination, whichever is shorter, as well as any expense reimbursement amounts owed through the date of termination. All Stock Options shall be accelerated and deemed to have vested as of the termination date. Except as provided under the terms of the Company’s employee benefit plans (as generally applied to executive officers ), the Executive shall have no further entitlement to any other compensation or benefits from the Company, including but not limited to the separation payments set forth in Section 10(c).

For purposes of this Agreement, “Change of Control” means (i) the acquisition, directly or indirectly, following the date hereof, by any person (as such term is defined in Section 3(a)(9) and as modified and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), of securities of the Company resulting in such person owning, after such acquisition, in excess of fifty percent (50%) of the combined voting power of the Company’s then outstanding securities, (ii) the disposition by the Company (whether direct or indirect, by

10

sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets in one transaction or series of related transactions (other than a merger effected exclusively for the purpose of changing the domicile of the Company or otherwise unrelated to a change of majority ownership or control of the Company or the business and/or assets of the Company involved in such transaction) or (iii) the individuals who on the date of this Agreement constitute the Board and any subsequent Board-approved directors cease for any reason to constitute a majority of the Board (for this purpose a “Board-approved director” is any director duely elected or appointed according to the Company’s bylaws after the date of this Agreement and whose nomination, election or appointment was approved by a vote of the directors then in office who either were directors of the Company on the date of this Agreement or whose election or appointment was previously so approved).

(e) Except as provided under the terms of the Company’s employee benefit plans (as generally applied to executive officers), this Section 10 sets forth the only obligations of the Company with respect to the termination of the Executive’s employment with the Company, and the Executive acknowledges that, upon the termination of his employment, he shall not be entitled to any payments or benefits which are not explicitly provided in Section 10 or under the terms of the Company’s employee benefit plans.

(f) Following expiration and non-renewal of the Term, should the Company, in its sole discretion require that the Executive continue to comply with the terms of Section 7 hereof following termination of Executive’s employment, the Company shall pay the Executive his Base Salary for a period of one year. The Company shall pay the Base Salary in equal bi-monthly installments, beginning within fifteen (15) days immediately following his termination. The Company (or its successor, as applicable) shall pay any other amounts due pursuant to this paragraph at the same time the amount would have been paid had the Executive remained employed by the Company. In the event of the termination of Executive’s employment pursuant to Section 10(b) or 10(c) hereof, then Executive shall continue to comply with the terms of Section 7 hereof without any additional consideration paid by the Company.

(g) Upon termination of the Executive’s employment hereunder for any reason, the Executive shall be deemed to have resigned as director of the Company, effective as of the date of such termination.

(h) Payments to be made under this Section 10 are hereby designated and shall at all times be treated as a series of separate payments and not a single payment pursuant to Treasury Regulation § 1.409A-2(b)(2)(iii). To the maximum extent permitted under Section 409A, the payments described in this Section 10 are intended to qualify as short-term deferrals meeting the requirements of Treas. Reg. § 1.409A-1(b)(9)(iii).

(i) To the extent applicable, the parties hereto intend that this Agreement comply with Section 409A of the Code and all guidance or regulations thereunder (“Section 409A”), including without limitation compliance with all applicable exemptions from Section 409A (e.g., the short-term deferral exception). The parties hereby agree that this Agreement shall at all times be construed in a manner to comply with Section 409A and that should any provision be found not in compliance with Section 409A, the parties are hereby contractually obligated to execute any and all amendments to this Agreement deemed necessary and required

11

by legal counsel for the Company to achieve compliance with Section 409A. In the event amendments are required to be made to this Agreement to comply with Section 409A, the Company shall use its commercially reasonable best efforts to provide the Executive with substantially the same benefits and payments he would have been entitled to pursuant to this Agreement had Section 409A not applied, but in a manner that is compliant with Section 409A. The manner in which the immediately preceding sentence shall be implemented shall be the subject of good faith negotiations of the parties. The parties also agree that in no event shall any payment required to be made pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A be accelerated or deferred in violation of Section 409A. The parties further agree that any payments of deferred compensation that are to be made as a result of the Executive’s separation from service must be delayed pursuant to Section 409A until the earlier of the day that is six (6) months plus one day after such separation from service, or death of the Executive, but only if the Executive is determined to be a “specified employee” (as that term is defined in Section 409A) and only to the extent the delay is required under Section 409A.

(j) If Executive dies prior to receiving any or all of the payments, monthly installments or benefits to which he is due under this Section 10, then such remaining payments, monthly installments or benefits shall be payable to his estate with no change in the time or form of payment.

(k) The provisions of this Section 10 shall survive any termination of this Agreement.

11. Miscellaneous.

(a) This Agreement is governed by and will be construed and interpreted in accordance with the laws of the State of North Carolina, without reference to its conflict of laws principles.

(b) Any dispute arising out of, or relating to, this Agreement or the breach thereof, or regarding the interpretation thereof (except for any disputes arising out of or related to Sections 6 or 7 of the Agreement), shall be finally settled by binding arbitration conducted in Charlotte, North Carolina and administered by the American Arbitration Association (“AAA”) pursuant to its then-current Employment Arbitration Rules and Mediation Procedures (available at www.adr.org). The arbitration shall be conducted by a single experienced arbitrator or retired judge, to be chosen via the AAA’s selection procedures. The arbitrator’s award shall be final and binding. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator may award monetary damages and, in the arbitrator’s discretion, attorneys’ fees and/or costs to the prevailing party if allowed by statute. The arbitrator may not award punitive damages or any other type of exemplary damages unless such damages are specifically authorized by statute. Any filing fees and the fees and costs of the arbitrator shall be paid equally by the Company and Executive. Each party shall pay the fees of his or her attorneys, the expenses of his or her witnesses, and any other expenses that party incurs in connection with the arbitration. For the purpose of any judicial proceeding to enforce such award or incidental to such arbitration or to compel arbitration and for purposes of Sections 6 and 7 hereof, the parties hereby submit to the sole and exclusive jurisdiction of the state or

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federal courts sitting in Mecklenburg County, North Carolina, and agree that service of process in such arbitration or court proceedings shall be satisfactorily made upon it or him if sent by registered mail addressed to it or him at the address referred to in Section 11(g) of this Agreement.

(c) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, legal representatives, successors and assigns.

(d) This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive. The Company may assign its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its business or assets.

(e) This Agreement cannot be amended orally, or by any course of conduct or dealing, but only by a written agreement signed by the parties hereto.

(f) The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and such terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party.

(g) All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be delivered personally or by an overnight courier service or sent by registered or certified mail, postage prepaid, return receipt requested, to the parties at the addresses set forth on the first page of this Agreement, and shall be deemed given when so delivered personally or by overnight courier, or, if mailed, five days after the date of deposit in the United States mail. Either party may designate another address, for receipt of notices hereunder by giving notice to the other party in accordance with this paragraph (g).

(h) This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.

(i) As used in this Agreement, “affiliate” of a specified Person shall mean and include any Person controlling, controlled by or under common control with the specified Person.

(j) The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

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(k) This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

CHELSEA THERAPEUTICS INTERNATIONAL, LTD.
By:	/s/ Kevan Clemens
	Name:    Kevan Clemens
	Title:      Chairman of the Board of Directors

EXECUTIVE
By:	/s/ Simon Pedder
	Name:    Dr. Simon Pedder

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EX-10.17

Portions of this exhibit marked [*] are requested to be treated confidentially.

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EXHIBIT 10.17

Manufacturing Services Agreement

November 7, 2011

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Table of Contents

ARTICLE 1		1
INTERPRETATION		1
1.1	Definitions.	1
1.2	Currency.	6
1.3	Sections and Headings.	6
1.4	Singular Terms.	6
1.5	Schedules.	6
PATHEON'S MANUFACTURING SERVICES		7
2.1	Manufacturing Services.	7
ARTICLE 3		11
CLIENT'S OBLIGATIONS		11
3.1	Payment.	11
ARTICLE 4		11
CONVERSION FEES AND COMPONENT COSTS		11
4.1	First Year Pricing.	11
4.2	Price Adjustments – Subsequent Years’ Pricing.	12
4.3	Price Adjustments – Current Year Pricing.	13
4.4	Adjustments Due to Technical Changes.	13
4.5	Multi-Country Packaging Requirements.	14
4.6	Books and Records.	14
4.7	Financial Audit.	14
ARTICLE 5		14
ORDERS, SHIPMENT, INVOICING, PAYMENT		14
5.1	Orders and Forecasts.	14
5.2	Reliance by Patheon.	16
5.3	Minimum Orders.	16
5.4	Shipments.	16
5.5	On Time Delivery.	17
5.6	Invoices and Payment.	17
5.7	Failure to Supply.	18
ARTICLE 6		18
PRODUCT CLAIMS AND RECALLS		18
6.1	Product Claims.	18
6.2	Product Recalls and Returns.	19
6.3	Patheon’s Responsibility for Defective and Recalled Products.	19
6.4	Disposition of Defective or Recalled Products.	20
6.5	Healthcare Provider or Patient Questions and Complaints.	21
6.6	Sole Remedy.	21
ARTICLE 7		21
CO-OPERATION		21
7.1	Quarterly Review.	21

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7.2	Governmental Agencies.	21
7.3	Records and Accounting by Patheon.	21
7.4	Inspection.	22
7.5	Access and GMP Auditing.	22
7.6	Notification of Regulatory Inspections.	22
7.7	Reports.	22
7.8	FDA Filings.	23
ARTICLE 8		24
TERM AND TERMINATION		24
8.1	Initial Term.	24
8.2	Termination for Cause.	24
8.3	Product Discontinuation.	25
8.4	Obligations on Termination.	25
ARTICLE 9		26
REPRESENTATIONS, WARRANTIES AND COVENANTS		26
9.1	Authority.	26
9.2	Client Warranties.	26
9.3	Patheon Warranties.	27
9.4	Debarred Persons.	28
9.5	Permits.	28
9.6	No Warranty.	29
ARTICLE 10		29
REMEDIES AND INDEMNITIES		29
10.1	Consequential Damages.	29
10.2	Limitation of Liability.	29
10.3	Patheon.	30
10.4	Client.	30
10.5	Procedure.
10.6	Reasonable Allocation of Risk.	30
ARTICLE 11		31
CONFIDENTIALITY		31
11.1	Confidentiality.	31
ARTICLE 12		31
DISPUTE RESOLUTION		31
12.1	Commercial Disputes.	31
12.2	Technical Dispute Resolution.	31
ARTICLE 13		32
MISCELLANEOUS		32
13.1	Inventions.	32
13.2	Intellectual Property.	32
13.3	Insurance.	33
13.4	Independent Contractors.	33
13.5	No Waiver.	33
13.6	Assignment.	33

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13.7	Force Majeure.	34
13.8	Additional Product.	34
13.9	Notices.	34
13.10	Severability.	35
13.11	Entire Agreement.	35
13.12	Other Terms.	35
13.13	No Third Party Benefit or Right.	36
13.14	Execution in Counterparts.	36
13.15	Use of Client Name.	36
13.16	Governing Law.	36

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MANUFACTURING SERVICES AGREEMENT

THIS MANUFACTURING SERVICES AGREEMENT (the “Agreement”) is made as of [month, day, year] (the “Effective Date”)

B E T W E E N:

PATHEON INC.,

a corporation existing under the laws of Canada,

(“Patheon”),

                    - and -

Chelsea Therapeutics Inc,

a corporation existing under the laws of Delaware,

(“Client”).

THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

ARTICLE 1

INTERPRETATION

1.1 Definitions.

The following terms will, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of these terms will have corresponding meanings:

“Active Materials”, “Active Pharmaceutical Ingredients” or “API” means the materials listed on Schedule D;

“Active Materials Credit Value” means the value of the Active Materials for certain purposes of this Agreement, as set forth on Schedule D;

“Affiliate” means:

(a) a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or

(b) a business entity which is controlled by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or

(c) a business entity, the controlling interest of which is directly or indirectly common to the majority ownership of a party to this Agreement;

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For this definition, “control” means the ownership of shares carrying at least a majority of the votes for the election of the directors of a corporation.

“Annual Report” means the annual report to the FDA prepared by Client regarding the Product as described in Title 21 of the United States Code of Federal Regulations, Section 314.81(b)(2);

“Annual Product Review Report” means the annual product review report prepared by Patheon as described in Title 21 of the United States Code of Federal Regulations, Section 211.180(e);

“Annual Volume” means the minimum volume of Product to be manufactured in any Year of this Agreement as set forth in Schedule B;

“Applicable Laws” means all Laws to the extent applicable to the subject matter of, or the performance by the parties of their respective obligations under, this Agreement, including but not limited to (i) for Patheon, (a) the Federal Food, Drug, and Cosmetic Act, together with any regulation promulgated thereunder, including without limitation cGMPs and (b) the Laws of the jurisdiction where services are provided under this Agreement; and (ii) for Client and the Products, the Laws of all jurisdictions where the Products are manufactured, distributed, and marketed as these are agreed and understood by the parties in this Agreement;

“Authority” means any governmental or regulatory authority, department, body or agency or any court, tribunal, bureau, commission or other similar body, whether federal, state, provincial, county or municipal;

“Bill Back Items” means the expenses for all third party supplier fees for the purchase of columns, standards, tooling, PAPR or PPE suits (where applicable), RFID tags and supporting equipment, and other project specific items required solely for Patheon to perform the Manufacturing Services for Client, and which are not included as Components;

“Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the Province of Ontario, Canada

“cGMPs” means current good manufacturing practices as described in:

(a) Division 2 of Part C of the Food and Drug Regulations (Canada);

(b) Parts 210 and 211 of Title 21 of the United States’ Code of Federal Regulations; and

(c) EC Directive 2003/94/EC

together with the latest Health Canada, FDA and EMA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time including, but not limited to, the FDA’s guidance for Industry, Manufacturing, Processing or Holding Active Pharmaceutical Ingredients;

“Client Intellectual Property” means Intellectual Property generated or derived by Client before entering into this Agreement, or by Patheon while performing any Manufacturing Services or otherwise generated or derived by Patheon in its business which Intellectual Property is specific to the development, manufacture, use, and/or sale of Client’s Product or Active Materials that are the subject of the Manufacturing Services (including, but not limited to, any new use, new formulation or any change in the method of producing, testing or storing any Product), including but not limited to (i) any regulatory filings, formulations, chemical compositions, or Specifications relating to the Products, and (ii) any and all Confidential Information of Client, including any

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chemical structures, composition of matter rights, process technology and other Inventions owned or controlled by Client;

“Client Material Report” or “CMR” means the report prepared by Patheon that provides a list for all materials which have expired, have been rejected or no longer have forecasted production requirements for Client’s products at the Manufacturing Site.

“Commencement Date” means the date on which any Regulatory Authority first approves Client’s Product for sale in the Territory.

“Components” means, collectively, all packaging components, raw materials, and ingredients (including labels, product inserts and other labelling for the Products), required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

“Confidentiality Agreement” means the agreement about the non-disclosure of confidential information between Patheon and Client dated [*];

“Confidential Information” will have the meaning ascribed thereto in the Confidentiality Agreement;

“Deficiency Notice” has the meaning specified in Section 6.1(a);

“Delivery Date” means the date scheduled for shipment of Product under a Firm Order as set forth in Section 5.1(e);

“EMA” means the European Medicines Agency;

“Equipment” will have the meaning ascribed to it in {Capital Equipment Agreement related to this MSA if any

“FDA” means the United States Food and Drug Administration;

“Firm Orders” has the meaning specified in Section 5.1;

“First Firm Order” has the meaning specified in Section 5.1;

“Force Majeure Event” has the meaning specified in Section 13.7;

“Health Canada” means the section of the Canadian Government known as Health Canada and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate;

“Initial Manufacturing Month” has the meaning specified in Section 5.1;

“Initial Manufacturing Period” has the meaning specified in Section 5.1;

“Initial Set Exchange Rate” means 1.00 as of the Effective Date of the Agreement being the initial exchange rate to convert one unit of Patheon facility local currency to one unit of the billing

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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currency, calculated as the average interbank exchange rate for conversion of one unit of Patheon facility local currency to one unit of the billing currency during the 90 day period immediately preceding the Effective Date as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at www.OANDA.com/convert/fxhistory;

“Intellectual Property” includes, without limitation, rights in patents, patent applications, formulae, trade-marks, trade-mark applications, trade-names, Inventions, copyrights, industrial designs, trade secrets, and know how;

“Invention” means information about any innovation, improvement, development, discovery, computer program, device, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

“Inventory” means all inventories of Components and work-in-process produced or held by Patheon for the manufacture of the Products but, for greater certainty, does not include the Active Materials or Bill Back Items;

“Late Delivery” has the meaning specified in Section 5.5;

“Laws” means all laws, statutes, ordinances, regulations, rules, by-laws, judgments, decrees or orders of any Authority;

“Manufacturing Services” means the manufacturing, quality control, quality assurance, stability testing, packaging, and related services, set forth in this Agreement, required to manufacture Product or Products from Active Materials and Components;

“Manufacturing Site” means the facility owned and operated by Patheon that is located at 111 Consumers Drive, Whitby, Ontario, Canada];

“Materials” means all Components, Bill Back Items, and other materials used to manufacture the Product other than Active Materials;

“Maximum Credit Value” means the maximum value of Active Materials that may be credited by Patheon under this Agreement, as set forth on Schedule D;

“Minimum Run Quantity” means the minimum number of batches of a Product to be produced during the same cycle of manufacturing as set forth in Schedule B;

“Patheon Intellectual Property” means Intellectual Property generated or derived by Patheon before performing any Manufacturing Services, Intellectual Property developed by Patheon while performing the Manufacturing Services, or otherwise generated or derived by Patheon in its business which Intellectual Property is not specific to, or dependent upon, Client’s Active Material or Product including, without limitation, Inventions and Intellectual Property which may apply to manufacturing processes or the formulation or development of drug products, drug product dosage forms or drug delivery systems unrelated to the specific requirements of the Product(s);

“Price” means the price measured in US Dollars to be charged by Patheon for performing the Manufacturing Services, and includes the cost of Components, certain cost items as set forth in Schedule B, and annual stability testing costs as set forth in Schedule C;

“Product(s)” means the product(s) listed on Schedule A;

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“Product Forecast” and “Extended Product Forecast” have the meanings specified in Section 5.1;

“Quality Agreement” means the agreement (the form of which is set forth in Schedule F) between the parties setting out the quality assurance standards for the Manufacturing Services to be performed by Patheon for Client;

“Regulatory Authority” means the FDA, EMA, and Health Canada and any other foreign regulatory agencies competent to grant marketing approvals for pharmaceutical products including the Products in the Territory;

“Reset Date” means, with reference to any particular Year, the date on which Patheon is to provide Client with updated pricing for the Product for the next Year; which date will be not less than one month prior to the beginning of that Year;

“RFID” means Radio Frequency Identification Devices which (at present or in the future) may be affixed to Products or Materials to assist in inventory control, tracking, and identification;

“Set Exchange Rate” means the exchange rate to convert one unit of Patheon facility local currency to one unit of the billing currency for each Year, calculated as the average interbank exchange rate for conversion of one unit of Patheon facility local currency to one unit of the billing currency during the three month period immediately preceding the Reset Date by one month as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at www.OANDA.com/convert/fxhistory;.

“Specifications” means the file, for each Product, which is listed in Schedule A and which contains documents relating to each Product, including, without limitation:

(a) specifications for Active Materials and Components;

(b) manufacturing specifications, directions, and processes;

(c) storage requirements;

(d) all environmental, health and safety information for each the Product including material safety data sheets; and

(e) the finished Product specifications, packaging specifications and shipping requirements for each Product;

all as updated, amended and revised from time to time by Client in accordance with the terms of this Agreement;

“Technical Dispute” has the meaning specified in Section 12.2;

“Territory” means in the geographic area of United States;

“Third Party Rights” means the Intellectual Property of any third party;

“Year” means the period from the Commencement Date up to and including December 31 of the same calendar year, and thereafter will mean a calendar year or, in the final year of the Agreement, the period commencing on January 1 until the termination date.

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1.2 Currency.

Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.

1.3 Sections and Headings.

The division of this Agreement into Articles, Sections, Subsections, and Schedules and the insertion of headings are for convenience of reference only and will not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement and not to any particular part, Section or Schedule of this Agreement.

1.4 Singular Terms.

Except as otherwise expressly stated or unless the context otherwise requires, all references to the singular will include the plural and vice versa.

1.5 Schedules.

The following Schedules are attached to, incorporated in, and form part of this Agreement:

Schedule A	-	Product List and Specifications
Schedule B	-	Minimum Run Quantity, Annual Volume, and Price
Schedule C	-	Annual Stability Testing
Schedule D	-	Active Materials, Active Materials Credit Value, and Maximum Credit Value
Schedule E	-	Technical Dispute Resolution
Schedule F	-	Commercial Quality Agreement
Schedule G	-	{Form of} Shipping Logistics Protocol
Schedule H	-	Quarterly Active Materials Inventory Report
Schedule I	-	Report of Annual Active Materials Inventory Reconciliation and Calculation of Actual Annual Yield
Schedule J	-	Example of Price Adjustment due to Currency Fluctuation
Schedule K	-	Estimated Bill Back Items

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PATHEON’S MANUFACTURING SERVICES

2.1 Manufacturing Services.

Patheon will perform the Manufacturing Services for the Territory for the fees specified in Schedules B and C to manufacture Products for Client and supply the Products to Client, in accordance with the Specifications, cGMPs, and all Applicable Laws. Schedule B sets forth a list of cost items that are included in the Price for Products; all cost items that are not included in this list are excluded from the Price and are subject to additional fees to be paid by the Client. Patheon may change the Manufacturing Site for the Products only with the prior written consent of Client, this consent not to be unreasonably withheld. If Manufacturing Services have not started on or before [*], (i) Patheon shall have the right to request an amendment to the fees set out in Schedules B and C and no such amendment shall be binding unless approved in writing by Client and (ii) Client shall have the right to terminate this Agreement, effective upon written notice to Patheon. Patheon will be the sole manufacturer of Products offered for sale by Client in the Territory for the Initial Term of this Agreement. Notwithstanding the foregoing, Client shall be entitled, at its sole cost and expense, to qualify a single alternative manufacturer (“Backup Manufacturer”) to manufacture Products, and may take all actions reasonably necessary in connection with the same, including without limitation purchasing small quantities or Products necessary to qualify such Backup Manufacturer. Client shall be permitted to sell any Product that results from the required qualification, validation and maintenance production runs from the Backup Manufacturer(s), provided that the batch sizes of such qualification, validation or maintenance runs do not exceed the maximum batch size validated for the Product by Patheon. Any units from an increase in batch size by the Backup Manufacturer may be used for non-commercial activities. Patheon agrees to cooperate with Client and provide all assistance, at Client’s expense, as may reasonably be requested by Client to qualify a Backup manufacturer, provided that Patheon may, in its sole discretion, refuse to permit access to the Manufacturing Site by any direct competitor of Patheon. In performing the Manufacturing Services, Patheon and Client agree that:

(a) Conversion of Active Materials and Components. Patheon will convert Active Materials and Components into Products.

(b) Quality Control and Quality Assurance. Patheon will perform the quality control and quality assurance testing specified in the Quality Agreement. Batch review and release to Client will be the responsibility of Patheon’s quality assurance group pursuant to the terms of this Agreement and the Quality Agreement. Patheon will perform its batch review and release responsibilities in accordance with Patheon’s standard operating procedures, which shall be commercially reasonable and comply with all Applicable Laws. Each time Patheon ships Products to Client, it will give Client a certificate of analysis and certificate of compliance including a statement that the batch has been manufactured and tested in accordance with Specifications and cGMPs. Client will have sole responsibility for the release of Products to the market. The form and style of batch documents, including, but not limited to, batch production records, lot packaging records, equipment set up control, operating parameters, and data printouts, raw material data, and laboratory notebooks are the exclusive property of Patheon. Specific Product related information contained in those batch documents is Client property.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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(c) Components. Patheon will purchase and test all Components (with the exception of those that are supplied by Client) at Patheon’s expense and as required by the Specifications.

(d) Stability Testing. Patheon will conduct stability testing on the Products in accordance with the protocols set out in the Specifications for the separate fees and during the time periods set out in Schedule C. Patheon will not make any changes to these testing protocols without prior written approval from Client. If a confirmed stability test failure occurs, Patheon will notify Client within one Business Day, after which Patheon and Client will jointly determine the proceedings and methods to be undertaken to investigate the cause of the failure, including which party will bear the cost of the investigation. Patheon will not be liable for these costs unless it has failed to perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws. Patheon will give Client all stability test data and results at Client’s request.

(e) Packaging. Patheon will package the Products as set out in the Specifications. Client will be responsible for the cost of artwork development. Patheon will determine and imprint the batch numbers and expiration dates for each Product shipped. The batch numbers and expiration dates will be affixed on the Products and on the shipping carton of each Product as outlined in the Specifications and as required by cGMPs. Client may, in its sole discretion, make changes to labels, product inserts, and other packaging for the Products. Those changes will be submitted by Client to all applicable governmental agencies and other third parties responsible for the approval of the Products. Client will be responsible for the cost of labelling obsolescence when changes occur, as contemplated in Section 4.4. Patheon’s name will not appear on the label or anywhere else on the Products unless: (i) required by any Laws; or (ii) Patheon consents in writing to the use of its name.

(f) Active Materials and Client Supplied Components Importing. At least [*] days before the scheduled production date, Client will deliver the Active Materials to the Manufacturing Site DDP (Incoterms 2000) sufficient for Patheon to manufacture the desired quantities of Product and to ship Product on the Delivery Date. If the Active Materials are not received [*] days before the scheduled production date, Patheon may delay the shipment of Product by the same number of days as the delay in receipt of the Active Materials. But if Patheon is unable to manufacture Product to meet this new shipment date due to prior third party production commitments, Patheon may delay the shipment until a later date as agreed to by the parties. All shipments of Active Material will be accompanied by certificate(s) of analysis from the Active Material manufacturer, confirming the identity and purity of the Active Materials and its compliance with the Active Material specifications. Any failures of Active Materials testing will be immediately reported to Client.

(g) Bill Back Items. Bill Back Items will be charged to Client at Patheon’s cost plus a [*] percent ([*]%) handling fee. Estimated Bill Back items shall be included in Schedule K; unexpected Bill Back items must be approved by Client, and will be reimbursed at Patheon’s cost.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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(h) Validation Activities. At Client’s request, Patheon will (i) assist in the development and approval of the validation protocols for analytical methods and manufacturing procedures (including packaging procedures) for the Products and (ii) validate all applicable processes, methods, equipment, utilities, facilities and computers used in the manufacture, packaging, storage, testing and release of Products in conformance with all Applicable Laws, including, but not limited to cGMPs. Upon request, Patheon will provide to Client a copy of the results of Product specific validation when such results are available. The fees associated with Patheon’s assistance in providing validation development assistance are set out in Schedule C.

(i) Product Rejection for Finished Product Specification Failure. Internal bulk process specifications will be defined and mutually agreed upon. If Patheon manufactures Product in accordance with the agreed upon process specifications and a batch or portion of batch of Product does not meet a Finished Product Specification, Client will reimburse Patheon for its reasonable, documented, direct out-of-pocket costs for Components consumed in such batch, plus [*] percent ([*]%) of the conversion fee for such batch, to cover labour and overhead costs associated with such batch. Notwithstanding the foregoing, Client will have no obligation to reimburse Patheon or pay any other amounts for such batch if such failure derives from Patheon’s negligence, intentional misconduct, Patheon’s failure to follow cGMP or ICH guidelines, regardless of whether the specific failure was included in the process specifications.

(j) Storage. Until finished Products have been issued a certificate of analysis and certificate of compliance or unless otherwise directly requested by Client, Patheon shall store all such Products in preparation for shipment to Client’s destination of choice identifiably distinct from any other raw material and finished or filled product stocks and shall comply with all storage requirements set forth in the Specifications and all Applicable Laws, including, but not limited to, cGMPs. Subject to Section 10.2, Patheon shall assume responsibility for any loss or damage to such finished Product while stored by Patheon.

2.2 Active Material Yield. 

(a) Reporting. Within [*] calendar days from the end of a quarter, Patheon will give Client a Client Material Report, and a quarterly inventory report of the Active Materials held by Patheon using the inventory report form set out in Schedule H, which will contain the following information for the quarter:

Quantity Received: The total quantity of Active Materials that complies with the Specifications and is received at the Manufacturing Site during the applicable period.

Quantity Dispensed: The total quantity of Active Materials dispensed at the Manufacturing Site during the applicable period. The Quantity Dispensed is calculated by [*]. The Quantity Dispensed will only include Active Materials received and dispensed in commercial manufacturing of Products and, for certainty, will not include any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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applicable), and (iv) Active Materials received or dispensed in technical transfer activities or development activities during the applicable period, including without limitation, any regulatory, stability, validation or test batches manufactured during the applicable period.

Quantity Converted: The total amount of Active Materials contained in the Products manufactured with the Quantity Dispensed (including any additional Products produced in accordance with Section 6.1 or 6.2), delivered by Patheon, and not rejected, recalled or returned in accordance with Section 6.1 or 6.2 because of Patheon’s failure to perform the Manufacturing Services in accordance with Specifications, cGMPs, and Applicable Laws.

Within [*] days after the end of (i) the first Year, and (ii) each [*] ([*]) month interval during each subsequent Year, (each such period in (i) and (ii) a “Reconciliation Interval”), Patheon will prepare a reconciliation of Active Materials on the reconciliation report form set forth in Schedule I including the calculation of the “Actual Yield” or “AY” for the Product at the Manufacturing Site during the Reconciliation Interval. However, if the Reconciliation Interval for the first or last Year comprises fewer than [*] ([*]) months, then the months comprising the Reconciliation Interval for the such Year will be combined with the [*] ([*]) months comprising the Reconciliation Interval (i) immediately following the first Year, or (ii) immediately preceding the last Year, as the case may be, for purposes of preparing the reconciliation report. AY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

[*]

[*]

After Patheon has produced a minimum of [*] successful commercial production batches of all strengths of the Product combined and has produced commercial production batches for at least [*] months at the Manufacturing Site (collectively, the “Target Yield Determination Batches”), the Parties will mutually agree on the target yield for the Product at the Manufacturing Site (each, a “Target Yield”). The target yield determination batches shall not include any batches that in Patheon and the Client’s reasonable judgement were produced in production runs involving technical difficulties or involving extraordinary loss of Active Materials;

(b) Shortfall Calculation. If the Actual Yield falls more than [*] percent below the respective Target Yield in a Reconciliation Interval, then the shortfall for the Reconciliation Interval (the “Shortfall”) will be calculated as follows:

Shortfall = [*]

(c) Credit for Shortfall. If there is a Shortfall for a Product in a Reconciliation Interval, then Patheon will credit Client’s account for the amount of the Shortfall not later than [*] days after the end of the Reconciliation Interval, provided that Patheon shall be entitled to an adjustment of the credited amount if the average Shortfall calculated over any [*] ([*]) consecutive Reconciliation Intervals in the same Year is less than or equal to [*] ([*]).

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Each credit under this Section 2.2(c) will be summarized on the reconciliation report form set forth in Schedule I. Upon expiration or termination of this Agreement, any remaining credit owing under this Section 2.2 will be paid to Client. The Shortfall, if any, will be disclosed by Patheon on the reconciliation report form. Notwithstanding anything in this Agreement to the contrary, in the event a Shortfall results from Patheon’s gross negligence or intentional misconduct, then Patheon shall reimburse Client for replacement cost of the API relating to such Shortfall.

(d) Maximum Credit. Patheon’s liability for Active Materials calculated in accordance with this Section 2.2 [for any Product] in a Year will not exceed, in the aggregate, the Maximum Credit Value set forth in Schedule D.

(e) No Material Breach. It will not be a material breach of this Agreement by Patheon under Section 8.2(a) if the Actual Annual Yield is less than the Target Yield, but should an Actual Annual Yield be less than [*]% of the Target Yield, Patheon’s rights as the sole manufacturer of Products offered for sale by Client in the Territory shall automatically terminate.,.

ARTICLE 3

CLIENT’S OBLIGATIONS

3.1 Payment.

Upon receipt of a properly rendered invoice in accordance with Section 5, Client will pay Patheon according to Section 5.6 for performing the Manufacturing Services according to the Prices specified in Schedules B and C. These prices may be subject to adjustment under other parts of this Agreement. Client will also pay Patheon for any Bill Back Items subject to other parts of this agreement.

3.2 Active Materials.

Client will at its sole cost and expense, deliver the Active Materials to Patheon (in accordance with Section 2.1(f)) sufficient for Patheon to manufacture the desired quantities of Product and to ship Product on the Delivery Date. The Active Materials will be held by Patheon on behalf of Client as set forth in this Agreement. Title to the Active Materials will at all times remain the property of Client. Any Active Materials received by Patheon will only be used by Patheon to perform the Manufacturing Services. Client’s failure to supply Patheon with Active Materials in accordance with the timeframes set forth in Section 2.1(f) will not be deemed a breach of this Agreement

ARTICLE 4

CONVERSION FEES AND COMPONENT COSTS

4.1 First Year Pricing.

The tiered Price and annual stability Price for the Products for the first Year are listed in Schedules B and C and are subject to the adjustments set forth in Sections 4.2 and 4.3. All cost items that are not included in this list are excluded from the Price and are subject to Client’s written approval prior to such additional fees being incurred.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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4.2 Price Adjustments – Subsequent Years’ Pricing.

After [*], Patheon may adjust the Price effective [*] of each Year as follows:

(a) Manufacturing Costs. Patheon may adjust the Price [*]. On or about November 1^st of each Year, Patheon will give Client a statement setting forth the calculation for the inflation adjustment to be applied in calculating the Price for the next Year.

(b) Component Costs. [*]. On or about November 1st of each Year, Patheon will give Client information about the increase or decrease in Component costs which will be applied to the calculation of the Price for the next Year to reasonably demonstrate that the Price increase is justified. But Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers. Following a Component cost increase under this section, Client shall have the right to source components from an alternative vendor whose prices are at least [*]% lower than Patheon’s vendors; however, Client shall bear the costs of any required validation, qualification, inspection or manufacturing changes related to the use of the Client’s alternative vendor.

(c) Pricing Basis. Client acknowledges that the Price in any Year is quoted based upon the Minimum Run Quantity and the price tiers specified in Schedule B. [*]. On or about November 1^st of each Year, Patheon will give Client a statement setting forth the information to be applied in calculating those cost increases for the next Year. But Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers.

(d) Adjustments Due to Currency Fluctuations. Patheon will adjust the Price for all Product that is manufactured outside the United States or Puerto Rico to reflect currency fluctuations. The adjustment will be calculated after all other annual Price adjustments under this Section 4.2 have been made. The adjustment will proportionately reflect the increase or decrease, if any, in the Set Exchange Rate compared to the Set Exchange Rate established for the prior Year or the Initial Set Exchange Rate, as the case may be. An example of the calculation of the price adjustment is set forth in Schedule J.

(e) Cost Improvement Program. Patheon shall develop cost reduction initiatives related to the manufacturing process or Specifications as part of an overall cost improvement program, provided such program does not involve additional capital or extraordinary costs unless otherwise agreed to by parties in writing. All net cost savings (net of implementation costs) realized from the cost improvement program will be [*], unless otherwise agreed to by the parties in writing. A “cost reduction initiative” for the purpose of this Agreement will be an initiative that reduces the internal or out-of-pocket costs incurred by a party in connection with the performance of its obligations under this Agreement. It is further agreed by the parties that on-going method improvements developed or adopted by either Client or Patheon independently of the other party(ies), will not be a cost reduction initiative under this section, and there will be no obligation on such party to share the net cost savings realized from such improvement with the other party(ies) to this Agreement.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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For all Price adjustments under this Section 4.2, Patheon will deliver to Client on or about [*] a revised Schedule B to be effective for the next Year.

4.3 Price Adjustments – Current Year Pricing.

During any Year of this Agreement, the Prices set out in Schedule B will be adjusted as follows:

Extraordinary Increases in Component Costs. If, at any time, market conditions result in Patheon’s cost of Components being materially greater than normal forecasted increases, then Patheon will be entitled to an adjustment to the Price for any affected Product to compensate it for the increased Component costs. Changes materially greater than normal forecasted increases will have occurred if: (i) the cost of a Component increases by [*]% of the cost for that Component upon which the most recent fee quote was based; or (ii) the aggregate cost for all Components required to manufacture a Product increases by [*]% of the total Component costs for the Product upon which the most recent fee quote was based. If Component costs have been previously adjusted to reflect an increase in the cost of one or more Components, the adjustments set out in (i) and (ii) above will operate based on the last cost adjustment for the Components.

For a Price adjustment under this Section 4.3, Patheon will deliver to Client a revised Schedule B and budgetary pricing information, adjusted Component costs or other documents reasonably sufficient to demonstrate that a Price adjustment is justified. Patheon will have no obligation to deliver any supporting documents that are subject to obligations of confidentiality between Patheon and its suppliers. The revised Price will be effective for any Product delivered on or after the first day of the month following Client’s receipt of the revised Schedule B.

(a) Following a Component cost increase under this section, Client shall have the right to source components from an alternative vendor whose prices are at least [*]% lower than Patheon’s vendors; however, Client shall bear the costs of any required validation, qualification, inspection or manufacturing changes related to the use of the Client’s alternative vendor.

4.4 Adjustments Due to Technical Changes.

Amendments to the Specifications or the Quality Agreement requested by Client will only be implemented following a technical and cost review by Patheon and are subject to Client and Patheon reaching agreement on Price changes required because of the amendment. If Client accepts a proposed Price change, the proposed change in the Specifications will be implemented, and the Price change will become effective, only for those orders of Products that are manufactured under the revised Specifications. In addition, Client agrees to purchase, at Patheon’s cost (limited to reasonable, documented, direct out-of-pocket costs for Components consumed in such batch, including all costs incurred by Patheon for the purchase and handling of the Inventory), all Inventory used under the “old” Specifications and purchased or maintained by Patheon in order to fill Firm Orders or under Section 5.2, if the Inventory can no longer be used under the revised Specifications. Open purchase orders for

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Components no longer required under any revised Specifications that were placed by Patheon with suppliers in order to fill Firm Orders or under Section 5.2 will be cancelled where possible, and if the orders may not be cancelled without penalty, will be assigned to and satisfied by Client. Patheon shall use commercially reasonable efforts to cancel such orders. Amendments to the Specifications, the Quality Agreement or the Manufacturing Site requested by Patheon will only be implemented following the written approval of Client, such approval not to be unreasonably withheld.

4.5 Multi-Country Packaging Requirements.

If Client decides to have Patheon perform Manufacturing Services for the Product for countries outside the Territory, then Client will inform Patheon of the packaging requirements for each new country and Patheon will prepare a quotation for consideration by Client of any additional Component costs and the change over fees for the Product destined for each new country. The agreed additional packaging requirements and related packaging costs and change over fees will be set out in a written amendment to this Agreement.

4.6 Books and Records

Patheon will maintain complete and accurate books, records and accounts in connection with its manufacture and supply of Products to permit verification of payments made and obligations owed hereunder. Patheon will retain such books, records and account for a period of not less than [*] ([*]) years after the calendar year in which they are prepared, or for such longer period as may be required by Applicable Law.

4.7 Financial Audit

Client and its agents and designees will have the right to audit and inspect Patheon’s books, records, procedures, documentation and any other information relating to the Products, Active Materials, Manufacturing Services, reporting and other items under this Agreement. Such audit will be conducted upon at least [*] ([*]) days advanced written notice to Patheon and during Patheon’s normal business hours. Any undisputed amounts that are determined to be due and owing by one party to the other party following such audit will be paid within [*] ([*]) days thereafter. Client will bear the cost of such audit unless such audit discloses (i) a material breach of this Agreement by Patheon or (ii) an undisputed overpayment by Client arising out of the amounts incorrectly invoiced by Patheon during the audited period of more than [*]% of the amount due, in which event, Patheon will be liable for the cost of the audit and will reimburse Client for any overcharged amounts.

ARTICLE 5

ORDERS, SHIPMENT, INVOICING, PAYMENT

5.1 Orders and Forecasts.

(a) Rolling [*] Month Forecast. When this Agreement is executed, Client will give Patheon a non-binding [*] month forecast of the volume of Product that Client expects to order in the first [*] months of commercial manufacture of the Product. This forecast will then be routinely updated by Client on or before the [*] day of each month on a rolling forward

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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basis and will be known as the Product Forecast. Client will update the Product Forecast forthwith if it determines that the volumes estimated in the most recent Product Forecast have changed by more than [*]%. The most recent [*] month Product Forecast will prevail.

(b) Firm Orders for Initial Manufacturing Month. At least [*] months before the start of commercial manufacture of the Product, Client will update the Product Forecast for the first [*] months of manufacture of the Product (the “Initial Manufacturing Period”). The [*] of this updated Product Forecast (“Initial Manufacturing Month”) will constitute a firm written order in the form of a purchase order or otherwise (“First Firm Order”) by Client to purchase and, when accepted by Patheon, for Patheon to manufacture the quantity of the Product. Client may cancel any Batches from the First Firm Order at no cost if notice of cancellation is received by Patheon [*] days or more before the scheduled Delivery Date under the First Firm Order. [*]. The parties agree that this payment will be considered liquidated damages for Patheon’s loss of manufacturing capacity due to the Client’s cancellation of manufacturing and will not be considered a penalty. If the First Firm Order is changed or adjusted as described above then the initial Product Forecast will also be adjusted as necessary. The cancellation rights in this section are subject to Client retaining responsibility for any costs or expenses actually incurred or irrevocably committed by Patheon under this Agreement before it received notice of the cancellation.

(c) Firm Orders Thereafter. After the Initial Manufacturing Month, on a rolling basis during the term of this Agreement, and on or before the [*] day of each month, Client will issue an updated Product Forecast and the first [*] months of that updated forecast will constitute a firm written order in the form of a purchase order or otherwise (“Firm Order”) by Client to purchase and, when accepted by Patheon, for Patheon to manufacture and deliver the agreed quantity of the Products on a date not less than [*] months from the first day of the month immediately following the date that the Firm Order is submitted. Firm Orders submitted to Patheon will specify Client’s Manufacturing Services purchase order number, quantities by Product type, monthly delivery schedule, and any other elements necessary to ensure the timely manufacture and shipment of the Products. Upon Patheon’s acceptance of a Firm Order, the quantities of Products ordered will be firm and binding on Client and may not be reduced by Client. Each Firm Order that meets the Minimum Run Quantities shall be deemed automatically accepted upon Patheon’s receipt provided that the quantity ordered does not exceed the quantities set forth in the pricing schedule.

(d) [*] Year Forecast. On or before the [*] day of [*] of each Year, Client will give Patheon a written non-binding [*] forecast, broken down by quarters for the [*] years of the forecast, of the volume of each Product Client then anticipates will be required to be manufactured and delivered to Client during the [*]-year period (the “Extended Product Forecast”).

(e) Acceptance of Firm Order. As set forth above, each Firm Order that meets the Minimum Run Quantities shall be deemed automatically accepted upon Patheon’s receipt provided that the quantity ordered does not exceed the quantities set forth in the pricing schedule. Patheon will send an acknowledgement of such acceptance to Client within ten Business Days of its receipt of the Firm Order. The acknowledgement will include, subject to

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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confirmation from the Client, the Delivery Date for the Product ordered. The Delivery Date may be amended by agreement of the Parties or as set forth in Sections 2.1(f) or 5.1(b). Patheon shall not unreasonably withhold or delay its acceptance of Firm Orders that do not meet the Minimum Run Quantities or that exceed quantities set forth in the Pricing Schedule, and shall send its acknowledgement of such acceptance as indicated above. Failure to provide such acknowledgement within [*] ([*]) days of receipt of the respective Firm Order shall be deemed an acceptance of such Firm Order by Patheon.

5.2 Reliance by Patheon.

(a) Client understands and acknowledges that Patheon will rely on the Firm Orders and Product Forecasts submitted under Sections 5.1(a), (b), and (c) in ordering the Components required to meet the Firm Orders. In addition, Client understands that to ensure an orderly supply of the Components, Patheon may want to purchase the Components in sufficient volumes to meet the production requirements for Products during part or all of the forecasted periods referred to in Section 5.1(a) or to meet the production requirements of any longer period agreed to by Patheon and Client. Accordingly, Client authorizes Patheon to purchase Components to satisfy the Manufacturing Services requirements for Products for the first [*] months contemplated in the most recent Product Forecast. Patheon may make other purchases of Components to meet Manufacturing Services requirements for longer periods if agreed to in writing by the parties. The Client will give Patheon written authorization to order Components for any launch quantities of Product requested by Client which will be considered a Firm Order when accepted by Patheon. If Components ordered by Patheon under Firm Orders or this Section 5.2 are not included in finished Products manufactured for Client within [*] months after the forecasted month for which the purchases have been made (or for a longer period as the parties may agree) or if the Components have expired during the period, then Client will pay to Patheon its reasonable, documented costs therefor (including all reasonable, documented costs incurred by Patheon for the purchase and handling of the Components). But if these Components are used in Products subsequently manufactured for Client or in third party products manufactured by Patheon, Client will receive credit for any reasonable, documented costs of those Components previously paid to Patheon by Client.

(b) If Client fails to take possession or arrange for the destruction of Components within [*] months of purchase or, in the case of finished Product, within [*] months of manufacture, Client will pay Patheon $[*] thereafter for storing the Components or finished Product. Storage fees for Components or Product which contain controlled substances or require refrigeration will be charged at $[*]. Storage fees are subject to a one pallet minimum charge per month. With the exception of validation batches, Patheon may ship finished Product held by it longer than [*] months to the facility designated by the Client, at Client’s expense on [*] days written notice to the Client.

5.3 Minimum Orders.

Client may only order Manufacturing Services for batches of Products in multiples of the Minimum Run Quantities as set out in Schedule B.

5.4 Shipments.

Shipments of Products will be made EXW (INCOTERMS 2000) Patheon’s shipping point unless otherwise mutually agreed. Risk of loss or of damage to Products will remain with Patheon until

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Patheon loads the Products onto the carrier’s vehicle for shipment at the shipping point at which time risk of loss or damage will transfer to Client. Patheon will, in accordance with Client’s instructions and as agent for Client, (i) arrange for shipping, including preparing and executing a packing list, so that the Product will be delivered to the delivery address on the delivery date set forth in the applicable Firm Order, with such shipping to be paid by Client and (ii) at Client’s risk and expense, obtain any export licence or other official authorization necessary to export the Products. Client will arrange for insurance and will select the freight carrier used by Patheon to ship Products and may monitor Patheon’s shipping and freight practices as they pertain to this Agreement. Products will be packed and transported in accordance with the Specifications.

5.5 On Time Delivery.

(a) Patheon and the Client understand that there may be uncertainties and necessary adjustments in production schedules during the Initial Manufacturing Period. The parties agree that they will work together closely to expedite deliveries and manage the scheduling of the initial Product launch.

(b) If, after the Initial Manufacturing Period, Patheon is unable to deliver the quantity of Product ordered under a Firm Order on the Delivery Date due to an act or omission by Patheon (a “Late Delivery”), Client will receive a credit from Patheon for the Late Delivery that will be applied against the purchase price under the next Firm Order. The credit will be [*] % of the Price of the quantities of Product not delivered by Patheon under the Firm Order on the Delivery Date (i.e., Client Credit = [*]).

(c) [*] Late Delivery will not be a material breach of this Agreement by Patheon for the purposes of Section 8.2, unless Patheon fails to deliver the accepted firm order for [*] days, in which case it may be considered a failure to supply and a material breach of the Agreement. [*] Late Deliveries of more than [*] days past the agreed delivery for accepted Firm Orders within a [*] month period shall also constitute a material breach.

(d) For clarity, a Late Delivery will not include any delay in shipment of Product caused by events outside of Patheon’s reasonable control, such as a Force Majeure Event, a delay in delivery of API or Materials, delays due to out of specification investigations, a delay in Product release approval from Client, inaccurate Client forecasts, receipt of non-conforming API or Components supplied by Client, or any market driven delays in deliveries from approved vendors.

(e) Patheon shall notify the Client immediately when it becomes aware of a possible Late Delivery occurring more than [*] ([*]) days after the expected delivery date. Failure to notify Client may be considered a material breach of this agreement for the purposes of Section 8.2,

5.6 Invoices and Payment.

Invoices will be sent by fax or email to the fax number or email address given by Client to Patheon in writing. Invoices will be sent when the Product is manufactured and title is transferred to the Client. Patheon will also submit to Client, with each shipment of Products, a duplicate copy of the invoice covering the shipment. Patheon will also give Client an invoice covering any Inventory or Components which are to be purchased by Client under Section 5.2 of this Agreement. Each invoice will, to the extent applicable, identify Client’s Manufacturing Services purchase order number, Product numbers, names

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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and quantities, unit price, freight charges, and the total amount to be paid by Client. Client will pay all undisputed invoices within 30 days of the date the invoice is sent to the Client. Interest on past due undisputed amounts will accrue at [*]% per month. The Late Delivery credits set forth in this Section 5 are only available to Client if all outstanding undisputed invoices have been paid in full or are within [*] days outstanding from the invoice date when the Late Delivery arose.

5.7 Failure to Supply

In the event, with respect to any particular Product, (i) Patheon cannot or does not, in any calendar month, supply on a timely basis supply at least [*]% of Client’s requirements for such Product, (ii) any facility involved in the manufacture or storage of such Product hereunder is prohibited from, or materially adversely affected in its ability to, produce, store, or otherwise be in involved in the provision of such Product to Client under this Agreement by the appropriate regulatory authorities or due to such failure to comply, (iii) Patheon’s receipt, within any six-month period, of more than one Form 483, warning letters or similar document from a regulatory authority relating to the manufacturing facility or Patheon’s quality systems which may indicate chronic or systematic quality problems at Patheon that could adversely impact Patheon’s ability to supply the Products or (iv) Client properly rejects Products in accordance with Section 6.1(a) and such rejection materially adversely affects Client’s ability to sell the relevant Product, then in addition to, and without limitation of, any legal or equitable remedies available to Client as a result of any breach of this Agreement by Patheon, all rights with respect to such Product shall become nonexclusive, and Client shall be free to engage a third party manufacturer or supplier of such Product (or replacement products) or manufacture it directly upon prior written notice to, but without such prior written consent of, Patheon and Patheon shall be deemed to have licensed to Client the manufacturing rights reasonably necessary to provide for such manufacture. Notwithstanding any provision of this Agreement to the contrary, all reasonable direct costs and expenses incurred by Client in connection with having such Product (or replacement products) manufactured and acquired, less the amount that Client would have paid to Patheon hereunder for such Product had Patheon complied with the terms of this Agreement, shall be borne by Patheon and paid to Client within ten (10) days of demand therefor by Client.

ARTICLE 6

PRODUCT CLAIMS AND RECALLS

6.1 Product Claims.

(a) Product Claims. Client has the right to reject and return any portion of any shipment of Products that deviates from the Specifications, cGMPs, or Applicable Laws without invalidating any remainder of the shipment. Client or its designated representative, will inspect the Products manufactured by Patheon upon receipt and will give Patheon written notice (a “Deficiency Notice”) of all claims for Products that deviate from the Specifications, cGMPs, or Applicable Laws within 30 days after Client’s receipt thereof (or, in the case of any defects not reasonably susceptible to discovery upon receipt of the Product, within 30 days after discovery by Client, but not after the expiration date of the Product). Should Client fail to give Patheon the Deficiency Notice within the applicable 30 day period, then the delivery will be deemed to have been accepted by Client on the 30^th day after delivery or discovery, as applicable. Except as set out in Section 6.3, Patheon will have no liability for any deviations for which it has not received notice within the applicable 30 day period.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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(b) Determination of Deficiency. Upon receipt of a Deficiency Notice, Patheon will have ten days to advise Client by notice in writing that it disagrees with the contents of the Deficiency Notice. If Client and Patheon fail to agree within ten days after Patheon’s notice to Client as to whether any Products identified in the Deficiency Notice deviate from the Specifications, cGMPs, or Applicable Laws, then the parties will use a mutually approved independent laboratory to evaluate if the Products deviate from the Specifications, cGMPs, or Applicable Laws. This evaluation will be binding on the parties. If the evaluation certifies that any Products deviate from the Specifications, cGMPs, or Applicable Laws, Client may reject and return those Products in the manner contemplated in this Section 6.1 and Patheon will be responsible for the cost of the evaluation. If the evaluation does not so certify for any of the Products, then Client will be deemed to have accepted delivery of the Products on the date the evaluation is delivered by the independent laboratory to the parties and Client will be responsible for the cost of the evaluation. With respect to any Products which Patheon agrees are deficient in accordance with the Deficiency Notice, or which are otherwise found to be deficient by the independent laboratory, Client will be entitled to the remedies set forth in Section 6.3(a).

(c) Shortages. Claims for shortages in the amount of Products shipped by Patheon will be dealt with by reasonable agreement of the parties.

6.2 Product Recalls and Returns.

(a) Records and Notice. Patheon and Client will each maintain records necessary to permit a Recall of any Products delivered to Client or customers of Client. Each party will promptly notify the other by telephone (to be confirmed in writing) of any information which might affect the marketability, safety or effectiveness of the Products or which might result in the Recall or seizure of the Products. Upon receiving this notice or upon this discovery, each party will stop making any further shipments of any Products in its possession or control until a decision has been made whether a Recall or some other corrective action is necessary. The decision to initiate a Recall or to take some other corrective action, if any, will be made and implemented by Client. “Recall” will mean any action (i) by Client to recover title to or possession of quantities of the Products sold or shipped to third parties (including, without limitation, the voluntary withdrawal of Products from the market); or (ii) by any regulatory authorities to detain or destroy any of the Products. Recall will also include any action by either Party to refrain from selling or shipping quantities of the Products to third parties which would have been subject to a Recall if sold or shipped.

(b) Recalls. If (i) any governmental or regulatory authority issues a directive, order or, following the issuance of a safety warning or alert about a Product, a written request that any Product be Recalled, (ii) a court of competent jurisdiction orders a Recall, or (iii) Client determines that any Product should be Recalled or that a “Dear Doctor” letter is required relating the restrictions on the use of any Product, Patheon will co-operate as reasonably required by Client, having regard to all applicable laws and regulations.

(c) Product Returns. Client will have the responsibility for handling customer returns of the Products. Patheon will give Client any assistance that Client may reasonably require to handle the returns.

6.3 Patheon’s Responsibility for Defective and Recalled Products.

(a) Defective Product. If Client rejects Products under Section 6.1 and the deviation is determined to have arisen from Patheon’s failure to provide the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws, Patheon will credit Client’s account for Patheon’s invoice price for the defective Products the (“Defective Product Credit Amount”). If Client previously paid for the defective Products, Patheon will promptly, at Client’s election, either: (i) refund the Defective Product Credit Amount; (ii) offset the Defective Product Credit Amount against other amounts due to

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Patheon hereunder; or (iii) replace the Products with conforming Products without Client being liable for payment therefor under Section 3.1, contingent upon the receipt from Client of all Active Materials required for the manufacture of the replacement Products. For greater certainty, Patheon’s responsibility for any loss of Active Materials in defective Product will be captured and calculated in the Active Materials Yield under Section 2.2.

(b) Recalled Product. If a Recall or return results from, or arises out of, a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws, Patheon will be responsible for the documented out-of-pocket expenses of the Recall or return and will promptly, at Client’s election, either: (i) refund the invoice price for such Recalled or returned Products (the “ Recalled Product Credit Amount “); (ii) offset such Recalled Product Credit Amount against other amounts due to Patheon hereunder; or (iii) use its commercially reasonable efforts to replace the Recalled or returned Products with new Products, contingent upon the receipt from Client of all Active Materials required for the manufacture of the replacement Products. A recall arising out of Patheon’s gross negligence, intentional misconduct, Patheon’s failure to follow cGMP or ICH guidelines is considered a material breach, and in such an event Client shall have the option to terminate the contract without the Remediation Period described in section 8.2(a). For greater certainty, Patheon’s responsibility for any loss of Active Materials in Recalled Product will be captured and calculated in the Active Materials Yield under Section 2.2. If Patheon is unable to replace the Recalled or returned Products (except where this inability results from a failure to receive the required Active Materials), then Client may request Patheon to reimburse Client for the price that Client paid to Patheon for Manufacturing Services for the affected Products. In all other circumstances, Recalls, returns, or other corrective actions will be made at Client’s cost and expense.

(c) Except as set forth in Sections 6.3(a) and (b) above, Patheon will not be liable to Client nor have any responsibility to Client for any deficiencies in, or other liabilities associated with, any Product manufactured by it, (collectively, “Product Claims”). For greater certainty, Patheon will have no obligation for any Product Claims to the extent the Product Claim (i) is caused by deficiencies in the Specifications, the safety, efficacy, or marketability of the Products or any distribution thereof, (ii) results from a defect in a Component that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications, (iii) results from a defect in the Active Materials or Components supplied by Client that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications, (iv) is caused by actions of third parties occurring after the Product is shipped by Patheon under Section 5.4, (v) is due to packaging design or labelling defects or omissions for which Patheon has no responsibility, (vi) is due to any unascertainable reason despite Patheon having performed the Manufacturing Services in accordance with the Specifications, cGMP’s, and Applicable Laws, or (vii) is due to any other breach by Client of its obligations under this Agreement.

6.4 Disposition of Defective or Recalled Products.

Client will not dispose of any damaged, defective, returned, or Recalled Products for which it intends to assert a claim against Patheon without Patheon’s prior written authorization to do so. Alternatively, Patheon may instruct Client to return the Products to Patheon. Patheon will bear the cost of disposition for any damaged, defective, returned or Recalled Products for which it bears responsibility under Section 6.3 and will promptly reimburse Client for any such costs which may be incurred directly by Client. In all other circumstances, Client will bear the cost of disposition, including all applicable fees for Manufacturing Services, for any damaged, defective, returned, or Recalled Products. In all other circumstances, Client will bear the cost of disposition, including all applicable fees for Manufacturing Services, for any damaged, defective, returned, or Recalled Products.

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6.5 Healthcare Provider or Patient Questions and Complaints.

Client will have the sole responsibility for responding to questions and complaints from its customers. Questions or complaints received by Patheon from Client’s customers, healthcare providers or patients will be promptly (but in any event, within one business day) referred to Client. Patheon will co-operate as reasonably required to allow Client to determine the cause of and resolve any questions and complaints. This assistance will include follow-up investigations, including testing. In addition, Patheon will give Client all mutually agreed upon information that will enable Client to respond properly to questions or complaints about the Products as set forth in the Quality Agreement. Unless it is determined that the cause of the complaint resulted from a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws, all costs incurred under this Section 6.5 will be borne by Client.

6.6 Sole Remedy.

Except for the indemnity set forth in Section 10.3, the recovery of direct damages, the recovery of damages for breaches of Article 11 hereof and subject to the limitations set forth in Sections 10.1 and 10.2, the remedies described in this Article 6 will be Client’s sole remedy for any failure by Patheon to provide the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws.

ARTICLE 7

CO-OPERATION

7.1 Quarterly Review.

Each party will forthwith upon execution of this Agreement appoint one of its employees to be a relationship manager responsible for liaison between the parties. The relationship managers will meet not less than quarterly to review the current status of the business relationship and manage any issues that have arisen.

7.2 Governmental Agencies.

Subject to Section 7.8, each party may communicate with any governmental agency, including but not limited to governmental agencies responsible for granting regulatory approval for the Products, regarding the Products if, in the opinion of that party’s counsel, the communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation. Unless, in the reasonable opinion of its counsel, there is a legal prohibition against doing so, a party will permit the other party to accompany and take part in any communications with the agency, and to receive copies of all communications from the agency.

7.3 Records and Accounting by Patheon.

Patheon will keep records of the manufacture, testing, and shipping of the Products, and retain samples of the Products as are necessary to comply with manufacturing regulatory requirements applicable to Patheon, as well as to assist with resolving Product complaints and other similar investigations. Copies of the records and samples will be retained for a period of one year following the date of Product expiry, or longer if required by law, at which time Client will be contacted concerning the delivery and destruction of the documents and/or samples of Products. Client is responsible for retaining samples of the Products necessary to comply with the legal/regulatory requirements applicable to Client.

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7.4 Inspection.

Client may inspect Patheon reports and records relating to this Agreement during normal business hours and with reasonable advance notice, but a Patheon representative must be present during the inspection.

7.5 Access and GMP Auditing.

Patheon will give Client reasonable access with reasonable prior written notice to the areas of the Manufacturing Site in which the Products are manufactured, stored, handled, or shipped to permit Client to verify that the Manufacturing Services are being performed in accordance with the Specifications, cGMPs, and Applicable Laws. But, with the exception of “for-cause” audits, Client will be limited each Year to one cGMP-type audit, lasting no more than two days, and involving no more than two auditors. Client may request additional cGMP-type audits, additional audit days, or the participation of additional auditors subject to payment to Patheon of a fee of $[*] for each additional audit day and $[*] per audit day for each additional auditor.

7.6 Notification of Regulatory Inspections.

Patheon will make its internal practices, books and records relating to the manufacture of the Products available and allow access to all facilities used for manufacturing the Products to any Authority having jurisdiction over the manufacture of the Products for the purposes of determining Patheon’s compliance with Applicable Laws, including, but not limited to, cGMPs. Patheon will notify Client by telephone and e-mail within one business day of any notice of any proposed or announced inspections, and as soon as possible (but in any case within after any unannounced inspection, by any Authority relating to the Products. Patheon will provide the Client with a reasonable description in writing of each such inspection promptly (but in no event later than five calendar days) thereafter, and with copies of any Authority-issued inspection observation reports (including, without limitation, Form 483s and equivalent forms from other regulatory bodies) and Authority correspondence, purged only of third party confidential information. Patheon will also notify Client of receipt of any other form 483’s or warning letters or any other significant regulatory action which Patheon’s quality assurance group determines could impact the regulatory status of the Products. Patheon and Client will cooperate in resolving any concerns with any Authority, and the Client may review Patheon’s responses to any such reports and communications, and Patheon will in its reasonable discretion incorporate into such responses any comments received from the Client. Patheon will also inform the Client of any action taken by any Authority against Patheon or any of its officers or employees which may be reasonably expected to adversely affect the Products or Patheon’s ability to supply the Products hereunder within two Business Days after the action is taken.

7.7 Reports.

Patheon will supply on an annual basis all Product data in its control, including release test results, complaint test results, and all investigations (in manufacturing, testing, and storage), that Client reasonably requires in order to complete any filing under any applicable regulatory regime, including any Annual Report that Client is required to file with the FDA. At the Client’s request, Patheon will provide a copy of the Annual Product Review Report, and any batch release test results to the Client at no additional cost. Any additional report requested by Client beyond the scope of cGMPs and customary FDA requirements will be subject to an additional fee to be agreed upon between Patheon and the Client.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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7.8 FDA Filings.

(a) Regulatory Authority. Client will have the sole responsibility for filing all documents with all Regulatory Authorities and taking any other actions that may be required for the receipt and/or maintenance of Regulatory Authority approval for the commercial manufacture of the Products. Patheon will assist Client, to the extent consistent with Patheon’s obligations under this Agreement, to obtain Regulatory Authority approval for the commercial manufacture of all Products as quickly as reasonably possible.

(b) Verification of Data. At least 21 days prior to filing any documents with any Regulatory Authority that incorporate data generated by Patheon, Client will give Patheon a copy of the documents incorporating this data to give Patheon the opportunity to verify the accuracy and regulatory validity of those documents as they relate to Patheon generated data.

(c) Verification of CMC. At least 21 days prior to filing with any Regulatory Authority any documentation which is or is equivalent to the FDA’s Chemistry and Manufacturing Controls (“CMC”) related to any Marketing Authorization, such as a New Drug Application or Abbreviated New Drug Application, Client will give Patheon a copy of the CMC as well as all supporting documents which have been relied upon to prepare the CMC that directly relate to Patheon data or processes and have not been previously reviewed by Patheon. This disclosure will permit Patheon to verify that the CMC accurately describes the work that Patheon has performed and the manufacturing processes that Patheon will perform under this Agreement. Client will give Patheon copies of all applicable CMC sections of FDA filings at the time of submission, for submissions which contain CMC information regarding the Product.

(d) Deficiencies. If, in Patheon’s sole discretion, acting reasonably, Patheon determines that any of the information given by Client under clauses (b) and (c) above is inaccurate or deficient in any manner whatsoever (the “Deficiencies”), Patheon will notify Client in writing of the Deficiencies within the 21 day timeframe provision. The parties will meet to discuss any deficiencies and work together to have the Deficiencies resolved prior to any pre-approval inspection, provided that to the extent of any disagreement concerning the form or content any information or submissions covered by subsections (b) and (c) above, Client will have the final decision-making authority.

(e) Client Responsibility. For clarity, the parties agree that in reviewing the documents referred to in clause (b) above, Patheon’s role will be limited to verifying the accuracy of the description of the work undertaken or to be undertaken by Patheon. Subject to the foregoing, Patheon will not assume any responsibility for the accuracy of any application for receipt of an approval by a regulatory authority. The Client is solely responsibility for the preparation and filing of the application for approval by the regulatory authorities and any relevant costs will be borne by the Client.

(f) Inspection by Regulatory Authorities. If Client does not give Patheon the documents requested under clause (b) above within the time specified and if Patheon reasonably believes that Patheon’s standing with a regulatory authority may be jeopardized, Patheon may, in its sole discretion, delay or postpone any inspection by the regulatory authority until Patheon has reviewed the requested documents and is satisfied with their contents.

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ARTICLE 8

TERM AND TERMINATION

8.1 Initial Term.

This Agreement will become effective as of the Effective Date and will continue until the third anniversary of the Commencement Date (the “Initial Term”), unless terminated earlier by one of the parties in accordance herewith. This Agreement will automatically continue after the Initial Term for successive terms of two years each (each a “Successive Term”) unless either party gives written notice to the other party of its intention to terminate this Agreement at least [*] months prior to the end of the then current term.

(a) Client may terminate this Agreement, for any reason or no reason, at any time during the Initial Term or any Successive Term with at least [*] months prior written notice (a “Termination Notice”) to Patheon (a “Client Termination”).

(b) Except for a termination under Sections 8.2 (a), (b) or (c), if there is a Client Termination for the Product prior to the expiration of the Initial Term, Client shall pay to Patheon (i) $[*] if the effective date of the Client Termination occurs after the Effective Date but before the end of [*] months after the Commencement Date, (ii) $[*] if the effective date of the Client Termination occurs between [*] months and [*] months after the Commencement Date or (iii) $[*] if the effective date of the Client Termination occurs during between [*] months and [*] months after the Commencement Date of the Initial Term (the “Client Termination Payment”). The Client Termination Payment shall be due to Patheon no later than [*] business days following the effective date of the Client Termination. For the avoidance of doubt, no Client Termination Payment shall result from a Client Termination that is effective on or after the expiration of the Initial Term or from a Client Termination made under Sections 8.2 (a), (b) or (c).

8.2 Termination for Cause.

(a) Either party at its sole option may terminate this Agreement upon written notice where the other party has failed to remedy a material breach of any of its representations, warranties, or other obligations under this Agreement within 60 days following receipt of a written notice (the “Remediation Period”) of the breach that expressly states that it is a notice under this Section 8.2(a) (a “Breach Notice”). The aggrieved party’s right to terminate this Agreement under this Section 8.2(a) may only be exercised for a period of 60 days following the expiry of the Remediation Period (where the breach has not been remedied) and if the termination right is not exercised during this period then the aggrieved party will be deemed to have waived the breach of the representation, warranty, or obligation described in the Breach Notice.

(b) Either party at its sole option may immediately terminate this Agreement upon written notice, but without prior advance notice, to the other party if: (i) the other party is declared insolvent or bankrupt by a court of competent jurisdiction; (ii) a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by the other party; or (iii) this Agreement is assigned by the other party for the benefit of creditors.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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(c) Client may terminate this Agreement as to any Product upon 30 days’ prior written notice if any Authority takes any action, or raises any objection, that prevents Client from importing, exporting, purchasing, or selling the Product. But if this occurs, Client will still fulfill all of its obligations under Section 8.4 below [and under any Capital Equipment Agreement regarding this Product].

(d) Patheon may terminate this Agreement upon [*] months’ prior written notice if Client assigns under Section 13.6 any of its rights under this Agreement to an assignee that, in the opinion of Patheon acting reasonably, is: (i) not a credit worthy substitute for Client; or (ii) a direct competitor of Patheon. A direct competitor, for the purposes of this section, means an entity that derives not less than [*]% of its annual revenue from any combination of contract pharmaceutical manufacturing or contract pharmaceutical development services.

8.3 Product Discontinuation.

Client will give at least [*] months’ advance notice if it intends to no longer order Manufacturing Services for a Product due to this Product’s discontinuance in the market.

8.4 Obligations on Termination.

If this Agreement is completed, expires, or is terminated in whole or in part for any reason, then:

(a) Patheon will cease the manufacture of Products and will terminate any unfilled orders with third parties that Patheon may have previously submitted with respect to Components, to the extent such orders may be terminated or revoked using commercially reasonable efforts.

(b) Client will take delivery of and pay for all undelivered Products that are manufactured and/or packaged under a Firm Order, at the price in effect at the time the Firm Order was placed;

(c) Client will purchase, at Patheon’s direct out-of-pocket cost (including all costs incurred by Patheon for the purchase and handling of the Inventory), the Inventory applicable to the Products which was purchased, produced or maintained by Patheon in contemplation of filling Firm Orders or in accordance with Section 5.2;

(d) Client will satisfy the purchase price payable under Patheon’s orders with suppliers of Components, if the orders were made by Patheon in reliance on Firm Orders or in accordance with Section 5.2;

(e) Patheon will return to Client all unused Active Materials (with shipping and related expenses, if any, to be borne by Client); and

(f) Client acknowledges that no Patheon competitor will be permitted access to the Manufacturing Site.

(g) Client will make commercially reasonable efforts, at its own expense, to remove from Patheon site(s), within fifteen Business Days, all of Client’s Components, Inventory and

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Materials (whether current or obsolete), supplies, undelivered Product, chattels, equipment or other moveable property owned by Client, related to the Agreement and located at a Patheon site or that is otherwise under Patheon’s care and control (“Client Property”). If Client fails to remove the Client Property within [*] Business Days following the completion, termination, or expiration of the Agreement Client will pay Patheon $[*] per pallet, per month, one pallet minimum ($[*] per pallet, per month, one pallet minimum, for any of the Client Property that contains controlled substances or requires refrigeration) thereafter for storing the Client Property and will assume any third party storage charges invoiced to Patheon regarding the Client Property. Patheon will invoice Client for the storage charges as set forth in Section 5.6 of this Agreement.

Any termination or expiration of this Agreement will not affect any outstanding obligations or payments due hereunder prior to the termination or expiration, nor will it prejudice any other remedies that the parties may have under this Agreement or any related Capital Equipment Agreement. For greater certainty, termination of this Agreement for any reason will not affect the obligations and responsibilities of the parties under Articles 10 and 11 and Sections 5.4, 5.6, 8.4, 13.1, 13.2, 13.3, and 13.15, all of which survive any termination.

ARTICLE 9

REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1 Authority.

(a) Each party covenants, represents, and warrants that it has the full right and authority to enter into this Agreement and that it is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

(b) this Agreement has been duly executed and delivered by, and is a legal and valid obligation binding upon such party, subject to the effects of bankruptcy, insolvency, or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity; and

(c) the entry into, the execution and delivery of, and the carrying out and other performance of its obligations under this Agreement by such party (i) does not conflict with, or contravene or constitute any default under, any agreement, instrument or understanding, oral or written, to which it is a party, including, but not limited to, its certificate of incorporation or by-laws, and (ii) does not violate Applicable Laws or any judgment, injunction, order or decree of any Authority having jurisdiction over it.

9.2 Client Warranties.

Client covenants, represents, and warrants that:

(a) Non-Infringement.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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(i) the Specifications for each of the Products are its or its Affiliate’s property and that Client may lawfully disclose the Specifications to Patheon;

(ii) any Client Intellectual Property, used by Patheon in performing the Manufacturing Services according to the Specifications (A) is owned or controlled by Client or its Affiliates, (B) may be lawfully used as directed by Client, and (C) to its knowledge does not infringe and will not infringe any Third Party Rights;

(iii) the performance of the Manufacturing Services by Patheon for any Product under this Agreement or the use or other disposition of any Product by Patheon as may be required to perform its obligations under this Agreement does not and will not infringe any Third Party Rights;

(iv) there are no actions or other legal proceedings, concerning the infringement of Third Party Rights related to any of the Specifications, or any of the Active Materials and the Components, or the sale, use, or other disposition of any Product made in accordance with the Specifications;

(b) Quality and Compliance.

(i) the Specifications for all Products conform to all applicable cGMPs and Applicable Laws;

(ii) the Products, if labelled and manufactured in accordance with the Specifications and in compliance with applicable cGMPs and Applicable Laws (i) may be lawfully sold and distributed in every jurisdiction in which Client markets the Products, (ii) will be fit for the purpose intended, and (iii) will be safe for human consumption;

(iii) on the date of shipment, the API will conform to the specifications for the API that Client has given to Patheon and that the API will be adequately contained, packaged, and labelled and will conform to the affirmations of fact on the container.

9.3 Patheon Warranties.

Patheon covenants, represents, and warrants that:

(a) it will perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws; and

(b) any Patheon Intellectual Property used by Patheon to perform the Manufacturing Services (i) is Patheon’s or its Affiliate’s unencumbered property, (ii) may be lawfully used by Patheon, and (iii) does not infringe and will not infringe any Third Party Rights.

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(c) it has and will maintain throughout the term of this Agreement, the expertise, with respect to personnel and equipment, to fulfill the obligations established hereunder, and has obtained all requisite material licenses, authorizations and approvals required by all Authorities to manufacture the Products;

(d) the Manufacturing Site, all other facilities, all equipment and all personnel to be employed by Patheon in rendering the Manufacturing Services are currently, and will be at the time each batch of Products is produced, qualified in accordance with all Applicable Laws, including, but not limited to, cGMPs;

(e) there are no pending or uncorrected citations or adverse conditions noted in any inspection of the Manufacturing Site or any other facilities to be employed by Patheon in rendering the Manufacturing Services which would cause the Products to be misbranded or adulterated within the meaning of the Act, including, but not limited to, all cGMPs;

(f) the Manufacturing Services and the contributions of Patheon to the manufacture of the finished Product in accordance with this Agreement do not and will not infringe any Third Party Rights, except to the extent caused or contributed to by any breach of Client’s warranties under Section 9.2(a);

(g) there are no pending or threatened claims against Patheon asserting that any of the activities of Patheon relating to the conduct of the activities contemplated herein by Client, infringe, misappropriate, or violate any Third Party Rights;

(h) all employees, consultants, subcontractors and agents performing services for Patheon hereunder have assigned, or will assign, in writing to Patheon all of their right, title and interest in, to and under any and all Inventions directly relating to the Product;

(i) all Product manufactured and supplied to the Client under this Agreement will not be adulterated or misbranded within the meaning of the Act or other Applicable Laws as of the time that the finished Product is transferred to the carrier at Patheon’s shipping point; and

(j) all Product manufactured and supplied to the Client under this Agreement will have the minimum Shelf Life specified for such Product in the Specifications and, in any event, will be shipped to the Client promptly (and in any event not more than three months) after the date of its manufacture.

9.4 Debarred Persons.

Patheon covenants that it will not in the performance of its obligations under this Agreement use the services of any person debarred or suspended under 21 U.S.C. §335(a) or (b). Patheon represents that it does not currently have, and covenants that it will not hire, as an officer or an employee any person who has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the Federal Food, Drug, and Cosmetic Act (United States).

9.5 Permits.

Client will be solely responsible for obtaining or maintaining, on a timely basis, any permits or other regulatory approvals for the Products or the Specifications, including, without limitation, all marketing and post-marketing approvals.

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Patheon will maintain at all relevant times all governmental permits, licenses, approval, and authorities required to enable it to lawfully and properly perform the Manufacturing Services.

9.6 No Warranty.

NEITHER PARTY MAKES ANY WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, BY FACT OR LAW, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. PATHEON MAKES NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY OF MERCHANTABILITY FOR THE PRODUCTS.

ARTICLE 10

REMEDIES AND INDEMNITIES

10.1 Consequential Damages.

Under no circumstances whatsoever will either party be liable to the other in contract, tort, negligence, breach of statutory duty, or otherwise for (i) any (direct or indirect) loss of profits, of production, of anticipated savings, of business, or goodwill or (ii) for any other liability, damage, costs, or expense of any kind incurred by the other party of an indirect or consequential nature, regardless of any notice of the possibility of these damages. The foregoing limitation shall not apply to claims for indemnification under Section 10.3 and 10.4, or breaches of Article 11.

10.2 Limitation of Liability.

(a) Active Materials. Except as expressly set forth in Section 2.2 and Article 6, under no circumstances will Patheon be responsible for any loss or damage to the Active Materials. Patheon’s maximum responsibility for loss or damage to the Active Materials will not exceed the Maximum Credit Value set forth in Schedule D.

(b) Maximum Liability. Except for the obligation to indemnify Client under Section 10.3, Patheon’s maximum liability under this Agreement for any reason whatsoever, including, without limitation, any liability arising under Article 6 hereof or resulting from any and all breaches of its representations, warranties, or any other obligations under this Agreement will not exceed the percent of revenue to Patheon from this Agreement in the applicable Year, for the volumes indicated in the following table up to a maximum of $[*] USD, in the aggregate, excluding Patheon’s liability to refund or credit the Defective Product Credit Amount or replace defective Products under Section 6.3(a).

Tier	% of revenues
[*] batches/year	[*]%
[*] batches/year	[*]%
[*] batches/year	[*]%

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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10.3 Patheon.

Patheon agrees to defend, indemnify, and hold Client, its officers, employees, and agents harmless against any and all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from, or relating to any claim of personal injury or property damage to the extent that the injury or damage is the result of (i) a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws, (ii) a breach of this Agreement by Patheon, including, without limitation, any representation or warranty contained here; or (iii) Patheon’s negligence or intentional misconduct, except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are due to the negligence or wrongful act(s) of Client, its officers, employees, agents, or Affiliates.

10.4 Client.

Client agrees to defend, indemnify, and hold Patheon, its officers, employees, and agents harmless against any and all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from, or relating to (i) any claim of infringement or alleged infringement of any Third Party Rights in the Products, or any portion thereof; (ii) or any claim of personal injury or property damage to the extent that the injury or damage is the result of a breach of this Agreement by Client, including, without limitation, any representation or warranty contained herein, except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are due to the negligence or wrongful act(s) of Patheon, its officers, employees, or agents.

10.5 Procedure.

If a claim occurs for which a party has an indemnification obligation under Section 10.3 or 10.4, the indemnified party (the “ Indemnitee “) will: (a) promptly notify the indemnifying party (the “ Indemnitor “) in writing of the claim; (b) use commercially reasonable efforts to mitigate the effects of the claim; (c) reasonably cooperate with the Indemnitor in the defense of the claim; and (d) permit the Indemnitor to control the defense and settlement of the claim, with counsel reasonably satisfactory to the Indemnitee, all at the Indemnitor’s cost and expense. If the Indemnitor assumes the defense of the claim, the Indemnitee may participate in such defense with the Indemnitee’s own counsel who will be retained, at the Indemnitee’s sole cost and expense; provided, however, that neither the Indemnitor nor the Indemnitee will consent to the entry of any judgment or enter into any settlement with respect to the claim without the prior written consent of the other party, which consent will not be unreasonably withheld or delayed. If the Indemnitee withholds consent in respect of a judgment or settlement involving only the payment of money by the Indemnitor and which would not involve any stipulation or admission of liability or result in the Indemnitee becoming subject to injunctive relief or other relief, the Indemnitor will have the right, upon written notice to the Indemnitee within five (5) days after receipt of the Indemnitee’s written denial of consent, to pay to the Indemnitee, or to a trust for its or the applicable third party’s benefit, such amount established by such judgment or settlement in addition to all interest, costs or other charges relating thereto, together with all attorneys’ fees and expenses incurred to such date for which the Indemnitor is obligated under this Agreement, if any, at which time the Indemnitor’s rights and obligations with respect to such claim will cease. The Indemnitor will not be liable for any settlement or other disposition of a claim by the Indemnitee which is reached without the written consent of the Indemnitor, acting reasonably.

10.6 Reasonable Allocation of Risk.

This Agreement (including, without limitation, this Article 10) is reasonable and creates a reasonable allocation of risk for the relative profits the parties each expect to derive from the Products. Patheon assumes only a limited degree of risk arising from the manufacture, distribution, and use of the Products because Client has developed and holds the marketing approval for the Products, Client requires Patheon to manufacture and label the Products strictly in accordance with the Specifications, and Client, not Patheon, is best positioned to inform and advise potential users about the circumstances and manner of use of the Products.

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ARTICLE 11

CONFIDENTIALITY

11.1 Confidentiality.

The Confidentiality Agreement will apply to all Confidential Information disclosed by the parties under this Agreement. If the Confidentiality Agreement expires or is terminated prior to the expiration or termination of this Agreement, the terms of the Confidentiality Agreement will continue to govern the parties’ obligations of confidentiality for any confidential or proprietary information disclosed by the parties hereunder, for the term of this Agreement, as though the Confidentiality Agreement remained in full force and effect.

ARTICLE 12

DISPUTE RESOLUTION

12.1 Commercial Disputes.

If any dispute arises out of this Agreement (other than a dispute under Section 6.1(b) or a Technical Dispute, as defined herein), the parties will first try to resolve it amicably. In that regard, any party may send a notice of dispute to the other, and each party will appoint, within ten Business Days from receipt of the notice of dispute, a single representative having full power and authority to solve the dispute. The representatives will meet as necessary in order to resolve the dispute. If the representatives fail to resolve the matter within one month from their appointment, or if a party fails to appoint a representative within the ten Business Day period set forth above, the dispute will immediately be referred to the Chief Operating Officer (or another officer as he/she may designate) of each party who will meet and discuss as necessary to try to resolve the dispute amicably. Should the parties fail to reach a resolution under this Section 12.1, the dispute will be referred to a court of competent jurisdiction in accordance with Section 13.15.

12.2 Technical Dispute Resolution.

If a dispute arises (other than disputes under Sections 6.1(b) or 12.1) between the parties that is exclusively related to technical aspects of the manufacturing, packaging, labelling, quality control testing, handling, storage, or other activities under this Agreement (a “Technical Dispute”), the parties will make all reasonable efforts to resolve the dispute by amicable negotiations. In that regard, senior representatives of each party will, as soon as practicable and in any event no later than ten Business Days after a written request from either party to the other, meet in good faith to resolve any Technical Dispute. If, despite this meeting, the parties are unable to resolve a Technical Dispute within a reasonable time, and in any event within 30 Business Days of the written request, the Technical Dispute will, at the request of either party, be referred for determination to an expert in accordance with Schedule E. If the parties cannot agree that a dispute is a Technical Dispute, Section 12.1 will prevail. For greater certainty, the parties agree that the release of the Products for sale or distribution under the applicable marketing approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including Schedule E) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

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ARTICLE 13

MISCELLANEOUS

13.1 Inventions.

(a) For the term of this Agreement, Client hereby grants to Patheon a non-exclusive, paid-up, royalty-free, non-transferable license of Client’s Intellectual Property which Patheon must use in order to perform the Manufacturing Services.

(b) All Inventions and Intellectual Property generated or derived by Patheon while performing the Manufacturing Services, to the extent it is specific to the development, manufacture, use, and sale of Client’s Product or Active Materials that are the subject of the Manufacturing Services (including, but not limited to, any new use, new formulation or any change in the method of producing, testing or storing any Product), will be the exclusive property of Client. Patheon will execute such instruments as will be required to evidence or effectuate the Client’s ownership of any such Inventions or other Intellectual Property, and will cooperate upon reasonable request in the prosecution of patents and other Intellectual Property rights related thereto.

(c) All Patheon Intellectual Property will be the exclusive property of Patheon. Patheon hereby grants to Client a worldwide perpetual, irrevocable, non-exclusive, paid-up, royalty-free, transferable and sub-licensable license to use the Patheon Intellectual Property used by Patheon to perform the Manufacturing Services to enable Client to manufacture and have manufactured the Product(s) and to use, import, export, offer to sell, and sell the same, with full right to sublicense to any third party in connection with the manufacture, sale or distribution of the Product.

(d) Each party will be solely responsible for the costs of filing, prosecution, and maintenance of patents and patent applications on its own Inventions.

(e) Either party will give the other party written notice, as promptly as practicable, of all Inventions which can reasonably be deemed to constitute improvements or other modifications of the Products or processes or technology owned or otherwise controlled by the party.

13.2 Intellectual Property.

Subject to Section 13.1, all Client Intellectual Property will be owned by Client and all Patheon Intellectual Property will be owned by Patheon. Neither party has, nor will it acquire, any interest in any of the other party’s Intellectual Property unless otherwise expressly agreed to in writing. Neither party will use any Intellectual Property of the other party, except as specifically authorized by the other party or as required for the performance of its obligations under this Agreement. Each party hereby acknowledges that it does not have, and will not acquire any interest in any of the other party’s trademarks or trade names unless otherwise expressly agreed. Each party agrees not to use any trademarks or trade names of the other party, except as specifically authorized by the other party in writing both as to the names or marks which may be used and as to the manner and prominence of use. All goodwill in any trademarks will inure to the benefit of the trademark owner. Client, in its sole discretion, will determine the trademarks and trade names owned or licensed by Client to be used in connection with the Products, including without limitation, the trademarks and trade names which will appear on the labels, packaging, and any promotional or other materials related to the Products. Patheon will use those trademarks and trade names notified by Client to Patheon for use in the labelling and packaging of the Products, and Patheon will use only such notified trademarks and trade names for such purpose. Upon expiration or termination of this Agreement, Patheon will immediately cease using all of Client’s trademarks and trade names.

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13.3 Insurance.

Each party will maintain commercial general liability insurance, including blanket contractual liability insurance covering the obligations of that party under this Agreement through the term of this Agreement and for a period of three years thereafter. This insurance will have policy limits of not less than (i) $[*] for each occurrence for personal injury or property damage liability; and (ii) $[*] in the aggregate per annum for product and completed operations liability. If requested each party will give the other a certificate of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date, and the limits of liability. The insurance certificate will further provide for a minimum of 30 days’ written notice to the insured of a cancellation of, or material change in, the insurance. If a party is unable to maintain the insurance policies required under this Agreement through no fault of its own, then the party will forthwith notify the other party in writing and the parties will in good faith negotiate appropriate amendments to the insurance provision of this Agreement in order to provide adequate assurances.

13.4 Independent Contractors.

The parties are independent contractors and this Agreement will not be construed to create between Patheon and Client any other relationship such as, by way of example only, that of employer-employee, principal agent, joint-venturer, co-partners, or any similar relationship, the existence of which is expressly denied by the parties.

13.5 No Waiver.

Either party’s failure to require the other party to comply with any provision of this Agreement will not be deemed a waiver of the provision or any other provision of this Agreement, with the exception of Sections 6.1 and 8.2.

13.6 Assignment.

(a) Patheon may not assign this Agreement or any of its rights or obligations hereunder without the written consent of Client, this consent not to be unreasonably withheld. But Patheon may arrange for subcontractors to perform specific testing services arising under this Agreement without the consent of Client, provided, however, that Patheon will provide advance notice of the name and function of any such subcontractor and will ensure such subcontractor’s adherence to the terms of this Agreement, including, but not limited to, the obligations of confidentiality set forth in Article 11

(b) Subject to Section 8.2(d), Client may assign this Agreement or any of its rights or obligations hereunder without approval from Patheon. But Client will give Patheon prior written notice of any assignment, any assignee will covenant in writing with Patheon to be bound by the terms of this Agreement.

(c) Despite the foregoing provisions of this Section 13.6, either party may assign this Agreement to any of its Affiliates or to a successor to or purchaser of all or substantially all of its business, but the assignee must execute an agreement with the non-assigning party whereby it agrees to be bound hereunder.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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13.7 Force Majeure.

Neither party will be liable for the failure to perform its obligations under this Agreement if the failure is caused by strikes or other labour disturbances, lockouts, riots, quarantines, communicable disease outbreaks, wars, acts of terrorism, fires, floods, storms, interruption of or delay in transportation, (lack of or inability to obtain fuel, power or components due to widespread market shortages, or compliance with any order or regulation of any government entity acting within colour of right (a “Force Majeure Event”). A party claiming a right to excused performance under this Section 13.7 will immediately notify the other party in writing of the extent of its inability to perform, which notice will specify the event beyond its reasonable control that prevents the performance. Notwithstanding the foregoing, such party will be excused by reason of the Force Majeure Event only so long as it is exercising commercially reasonable efforts to overcome such event. Notwithstanding the foregoing, if a Force Majeure Event prevents a party’s performance under this Agreement for an aggregate of sixty (60) days, the other party may terminate this Agreement upon written notice to the non-performing party. Neither party will be entitled to rely on a Force Majeure Event to relieve it from an obligation to pay money (including any interest for delayed payment) which would otherwise be due and payable under this Agreement.

13.8 Additional Product.

Additional products may be added to this Agreement and the additional products will be governed by the general conditions hereof with any special terms (including, without limitation, price) governed by amendments to Schedules A, B, and C as applicable.

13.9 Notices.

Any notice, approval, instruction or other written communication required or permitted hereunder will be sufficient if made or given to the other party by personal delivery, by telecopy, facsimile communication, or confirmed receipt electronic mail or by sending the same by first class mail, postage prepaid to the respective addresses, telecopy or facsimile numbers or electronic mail addresses set forth below:

If to Client:

Attention: Harish Pimplaskar, Jeff Nelson

Telecopier No.: 704.752.1479

Email address:

[Pimplaskar@chelsearx.com

Nelson@cheslearx.com]

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If to Patheon:

Patheon Inc.

2100 Syntex Court

Mississauga, Ontario L5N 7K9

Canada

Attention: Law Department

Telecopier No.: 905.812.6613

[NTD: insert local site and affiliate name, address and Telecopier number here in

place of above address as required]

With a copy to:

Patheon Inc.

4721 Emperor Boulevard

Research Triangle Park,

NC 27703

Attention: General Counsel

Telecopier No.: 919-474-2269

or to any other addresses, telecopy or facsimile numbers or electronic mail addresses given to the other party in accordance with the terms of this Section 13.9. Notices or written communications made or given by personal delivery, telecopy, facsimile, or electronic mail will be deemed to have been sufficiently made or given when sent (receipt acknowledged), or if mailed, five days after being deposited in the United States, Canada, or {European Union} mail, postage prepaid or upon receipt, whichever is sooner.

13.10 Severability.

If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, that determination will not impair or affect the validity, legality, or enforceability of the remaining provisions hereof, because each provision is separate, severable, and distinct.

13.11 Entire Agreement.

This Agreement, together with the Quality Agreement and the Confidentiality Agreement, constitutes the full, complete, final and integrated agreement between the parties relating to the subject matter hereof and supersedes all previous written or oral negotiations, commitments, agreements, transactions, or understandings concerning the subject matter hereof. Any modification, amendment, or supplement to this Agreement must be in writing and signed by authorized representatives of both parties. In case of conflict, the prevailing order of documents will be this Agreement, the Quality Agreement, and the Confidentiality Agreement.

13.12 Other Terms.

No terms, provisions or conditions of any purchase order or other business form or written authorization used by Client or Patheon will have any effect on the rights, duties, or obligations of the parties under or otherwise modify this Agreement, regardless of any failure of Client or Patheon to object to the terms, provisions, or conditions unless the document specifically refers to this Agreement and is signed by both parties.

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13.13 No Third Party Benefit or Right.

For greater certainty, nothing in this Agreement will confer or be construed as conferring on any third party any benefit or the right to enforce any express or implied term of this Agreement.

13.14 Execution in Counterparts.

This Agreement may be executed in two or more counterparts, by original or facsimile signature, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

13.15 Use of Client Name.

Patheon will not make any use of Client’s name, trademarks or logo or any variations thereof, alone or with any other word or words, without the prior written consent of Client, which consent will not be unreasonably withheld. Despite this, Client agrees that Patheon may include Client’s name and logo in customer lists or related marketing and promotional material for the purpose of identifying users of Patheon’s Manufacturing Services.

13.16 Governing Law.

This Agreement will be construed and enforced in accordance with the laws of the State of New York, excluding its conflicts of law provisions, and the laws of the United States of America applicable therein and subject to the exclusive jurisdiction of the courts thereof. The UN Convention on Contracts for the International Sale of Goods will not apply to this Agreement.

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IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the date first written above.

PATHEON INC.
by	/s/    Dean Wilson
—
by	Dean Wilson

CHELSEA THERAPEUTICS INC.
by	/s/    Joseph Oliveto
by	Joseph Oliveto

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SCHEDULE A

PRODUCT LIST AND SPECIFICATIONS

Product List

Northera Capsules 100mg, 90 count bottles

Northera Capsules 100mg, 21 count bottles

Northera Capsules 200mg, 90 count bottles

Northera Capsules 200mg, 21 count bottles

Northera Capsules 300mg, 90 count bottles

Northera Capsules 300mg, 21 count bottles

Specifications

Prior to the start of commercial manufacturing (not including any pre-approval validation batches) of Product under this Agreement Client will give Patheon the originally executed copies of the FDA approved Specifications. If the Specifications received are subsequently amended, then Client will give Patheon the revised and originally executed copies of the revised Specifications. Upon acceptance of the revised Specifications, Patheon will give Client a signed and dated receipt indicating Patheon’s acceptance of the revised Specifications.

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SCHEDULE B

MINIMUM RUN QUANTITY, ANNUAL VOLUME, AND PRICE

[*]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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SCHEDULE C

ANNUAL STABILITY TESTING

[*]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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SCHEDULE D

ACTIVE MATERIALS

Active Materials	Supplier
Droxidopa	Dainippon Sumitomo Pharma Co
Droxidopa	Piramal Healthcare Limited

ACTIVE MATERIALS CREDIT VALUE

The Active Materials Credit Value will be as follows:

[*]

MAXIMUM CREDIT VALUE

Patheon’s liability for Active Materials calculated in accordance with Section 2.2 of the Agreement in a Year will not exceed, in the aggregate, for the volumes indicated, the maximum credit value set forth below, expressed as a percentage of revenues to Patheon under this Agreement:

[*]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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SCHEDULE E

TECHNICAL DISPUTE RESOLUTION

Technical Disputes which cannot be resolved by negotiation as provided in Section 12.2 will be resolved in the following manner:

1. Appointment of Expert. Within ten Business Days after a party requests under Section 12.2 that an expert be appointed to resolve a Technical Dispute, the parties will jointly appoint a mutually acceptable expert with experience and expertise in the subject matter of the dispute. If the parties are unable to so agree within the ten Business Day period, or in the event of disclosure of a conflict by an expert under Paragraph 2 hereof which results in the parties not confirming the appointment of the expert, then an expert (willing to act in that capacity hereunder) will be appointed by an experienced arbitrator on the roster of ADR Chambers who will be a retired judge of the Ontario Superior Court of Justice or on the roster of the American Arbitration Association.

2. Conflicts of Interest. Any person appointed as an expert will be entitled to act and continue to act as an expert even if at the time of his appointment or at any time before he gives his determination, he has or may have some interest or duty which conflicts or may conflict with his appointment if before accepting the appointment (or as soon as practicable after he becomes aware of the conflict or potential conflict) he fully discloses the interest or duty and the parties will, after the disclosure, have confirmed his appointment.

3. Not Arbitrator. No expert will be deemed to be an arbitrator and the provisions of the Arbitration Act (Ontario) or of any other applicable statute (foreign or domestic) and the law relating to arbitration will not apply to the expert or the expert’s determination or the procedure by which the expert reaches his determination under this Schedule E.

4. Procedure. Where an expert is appointed:

(a) Timing. The expert will be so appointed on condition that (i) he promptly fixes a reasonable time and place for receiving representations, submissions or information from the parties and that he issues the authorizations to the parties and any relevant third party for the proper conduct of his determination and any hearing and (ii) he renders his decision (with full reasons) within 15 Business Days (or another other date as the parties and the expert may agree) after receipt of all information requested by him under Paragraph 4(b) hereof.

(b) Disclosure of Evidence. The parties undertake one to the other to give to any expert all the evidence and information within their respective possession or control as the expert may reasonably consider necessary for determining the matter before him which they will disclose promptly and in any event within five Business Days of a written request from the relevant expert to do so.

(c) Advisors. Each party may appoint any counsel, consultants and advisors as it feels appropriate to assist the expert in his determination and so as to present their respective cases so that at all times the parties will co-operate and seek to narrow and limit the issues to be determined.

(d) Appointment of New Expert. If within the time specified in Paragraph 4(a) above the expert will not have rendered a decision in accordance with his appointment, a new expert may (at the request of either party) be appointed and the appointment of the existing expert will thereupon cease for the purposes of determining the matter at issue between the parties save this if the existing expert renders his decision with full reasons

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prior to the appointment of the new expert, then this decision will have effect and the proposed appointment of the new expert will be withdrawn.

(e) Final and Binding. The determination of the expert will, except for fraud or manifest error, be final and binding upon the parties.

(f) Costs. Each party will bear its own costs for any matter referred to an expert hereunder and, in the absence of express provision in the Agreement to the contrary, the costs and expenses of the expert will be shared equally by the parties.

For greater certainty, the release of the Products for sale or distribution under the applicable marketing approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including this Schedule E) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

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SCHEDULE F

COMMERCIAL QUALITY AGREEMENT

[*]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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SCHEDULE G

[FORM OF] SHIPPING LOGISTICS PROTOCOL

[NTD: regional variations in the instructions etc. may be necessary while maintaining the EXWorks principle and the export principles outlined below]

Shipping will be carried out under the following terms and conditions:

[NOTE TO DRAFT: Use this section if we are only shipping within the country of manufacture.]

Shipping terms will be EXW (INCOTERMS 2010), the Manufacturing Site.

[NOTE TO DRAFT: Use this section if we are exporting to the US]

Exports of Products from Canada to the United States

1. Shipping terms will be EXW (INCOTERMS 2010), the Manufacturing Site.

2. Client, as the importer of record into the United States, will advise Patheon prior to export of the Products from Canada of Client’s designated customs broker and freight forwarder to enable Patheon to complete all applicable shipping documentation.

[NOTE TO DRAFT: Use this section if we are exporting outside of North America]

International Exports of Products from Canada (other than to the United States)

[NOTE TO DRAFT: Use next 3 clauses if we are exporting EXW to outside of North America. We can only ship EXW to outside of North America if Client has a Canadian affiliate that can act as the “exporter of record” from Canada. Many Clients do not have Canadian affiliates, in which case export to outside of North America must be FCA.]

EX WORKS

1. Shipping terms will be EXW (INCOTERMS 2010), the Manufacturing Site.

2. Client will designate its Canadian affiliate as the exporter of record from Canada and will advise Patheon of the name and address of that affiliate.

3. Client will instruct its Canadian affiliate to advise Patheon prior to export of the Products from Canada of the affiliate’s designated customs broker and freight forwarder to enable Patheon to complete all applicable shipping documentation.

[NOTE TO DRAFT: Use this section if we are exporting outside of North America and if the shipment is not EXW – see prior note to draft. In most cases, we will use FCA so the following 3 clauses will apply rather than the prior 3 clauses.]

FCA

1. Shipping terms will be FCA (INCOTERMS 2010), Manufacturing Site.

2. Patheon, as the exporter of record from Canada, will carry out all customs formalities necessary to export the Products including declaring the value of the Products being exported from Canada by completing a B-13 Export Declaration form which will be completed showing Patheon as the exporter of record of the Products with a value equivalent to Patheon’s selling price of the Products to Client plus assists. The assist value will be calculated in a manner consistent with the method of calculation used in calculating the values provided under Section 2.1(f) of the Agreement and as may be specified in the instructions of Canada Revenue Agency at time of export. For the purposes hereof, “assists” means (a) materials, components, parts, and other goods incorporated in the Products; (b) tools, dies, moulds, and other goods utilised in the production of the Products; (c) any materials consumed in the productions of the Products; (d) engineering, development work, art work, plans and sketches undertaken by Patheon for the production of the Products.

3. Patheon will report exports directly to Canada Revenue Agency and Statistics Canada at the time of shipment from the Manufacturing Site.

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[CLIENT LETTERHEAD]

Form of Logistics Routing Guide

Patheon Inc.

[INSERT ADDRESS]

Attention: ______________, A/M

1. Routine Routing/Shipping Instructions

The following lists the recommended agents and procedures for shipments of [PRODUCT NAME] from Patheon’s manufacturing site at [INSERT SITE ADDRESS], Ontario, Canada to [INSERT DESTINATION NAME AND ADDRESS].

AGENTS:

¡ Freight forwarder                     Contact:                             PH: (            )

¡ Customs broker                     Contact:                             PH: (            )

Questions concerning transport logistics should be directed to [CLIENT CONTACT INFO].

The following documents must be provided to the carrier for transport and customs purposes:

¡ Proforma Invoice

¡ Bill of Lading (“B/L”)

¡ Applicable Permits/Declarations

¡ Packing List

¡ If eligible, NAFTA Certificate of Origin will be provided in blanket form yearly to [INSERT CLIENT’S NAME] or [INSERT CLIENT’S NAME] broker.

Upon shipment departure from Patheon, a full set of documents must also be faxed to the following individuals:

¡ [INSERT CLIENT CONTACT FAX OR EMAIL]

Freight is shipped to:

[INSERT DESTINATION NAME AND ADDRESS]

Information to be provided on Proforma Invoice.

¡ Net Quantity

¡ Patheon Code & Lot Number

¡ Client Lot Number/ Purchase Order (“PO”)Number

¡ $ / Unit Including Assist Value (Active Materials Usage) & Toll Manufacturing Charge

¡ HTS (Harmonize Tariff Schedule)#

¡ NDC/IND/ANDA

¡ FDA Product Code

¡ Ship Date

¡ Patheon Bill of Lading Number

¡ Gross Weight

¡ Number of Pallets

Assist Values:

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¡ [INSERT ACTIVE MATERIALS NAME] $/kg.

Note: [INSERT CLIENT NAME] will provide updated values during the first month of each calendar year. If a change occurs throughout the year, Patheon will be notified within 30 days. Method of valuation for API will be provided in writing to Patheon Inc.

Information to be provided on Bill of Lading:

¡ B/L Number

¡ Carrier

¡ Origin Point

¡ Shipper Information

¡ Consignee

¡ Consignee Address

¡ Ship Date

¡ Number of Pallets

¡ Gross Weight

¡ PO Number for each Product/Lot

¡ Description of Goods Indication PC, Lot Number Quantity

¡ Seal Number

¡ Freight Terms (EXW or FCA)

¡ Carrier Signature

Information to be provided on Packing List:

¡ Ship date

¡ Bill of Lading Number

¡ Number of Pallets

¡ Weight

¡ Product Description

¡ Patheon Code Number, if applicable

¡ Patheon Lot Number, if applicable

¡ Number of Full Cartons (drums if bulk) x Quantity Per Carton

¡ Number of Partial Cartons (drums if bulk) x Quantity Per Carton

¡ Total Number of Cartons with Total Quantity Shipped

2. Non-Routine Routing/Shipping Instructions

As non-standard shipments are unique, the specific situations are to be discussed and agreed to by both Patheon and [INSERT CLIENT NAME] prior to shipment. Examples of non-standard shipments are shipping study samples, clinical/development batches, etc.

Yours truly,

AUTHORIZED SIGNATORY

CLIENT NAME

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SCHEDULE H

QUARTERLY ACTIVE MATERIALS INVENTORY REPORT

TO:	[name of Client]
FROM:	PATHEON INC.
RE:	Active Materials quarterly inventory report under Section 2.2(a) of the Manufacturing Services Agreement dated • (the “Agreement”)

Reporting quarter:                                                 __________________________________

[*]

Capitalized terms used in this report have the meanings given to the terms in the Agreement.

PATHEON INC.	DATE:
Per:
Name:
Title:

¹  Excludes [*].

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

Standard Form

SCHEDULE I

REPORT OF ACTIVE MATERIALS INVENTORY RECONCILIATION

AND CALCULATION OF ACTUAL YIELD

TO:	[name of Client]
FROM:   PATHEON INC.
RE:	Active Materials annual inventory reconciliation report and calculation of Actual Yield under Section 2.2(a) of the Manufacturing Services Agreement dated • (the “Agreement”)

Reporting Period ending:                                                 __________________________________

[*]

Based on the foregoing reimbursement calculation Patheon will reimburse Client the amount of $_______________.

Capitalized terms used in this report have the meanings given to the terms in the Agreement.

DATE: _____________________________

PATHEON INC.

Per:

Name:

Title:

¹  Excludes [*].

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

Standard Form

SCHEDULE J

EXAMPLE OF PRICE ADJUSTMENT DUE TO CURRENCY FLUCTUATION

Section 4.2(d)

Standard Form

SCHEDULE K

ESTIMATED BILL BACK ITEMS

[*]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-132330) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(2) Registration Statement (Form S-3 No. 333-141964) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(3) Registration Statement (Form S-3 No. 333-161236) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(4) Registration Statement (Form S-3 No. 333-171628) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(5) Registration Statement (Form S-3 No. 333-179183) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(6) Registration Statement (Form S-8 No. 333-137782) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(7) Registration Statement (Form S-8 No. 333-144061) of Chelsea Therapeutics International, Ltd. and Subsidiary,

(8) Registration Statement (Form S-8 No. 333-160256) of Chelsea Therapeutics International, Ltd. and Subsidiary, and

(9) Registration Statement (Form S-8 No. 333-171627) of Chelsea Therapeutics International, Ltd. and Subsidiary;

of our reports dated March 7, 2012, with respect to the consolidated financial statements of Chelsea Therapeutics International, Ltd. and Subsidiary and the effectiveness of internal control over financial reporting of Chelsea Therapeutics International, Ltd. and Subsidiary included in this Annual Report (Form 10-K) of Chelsea Therapeutics International, Ltd. and Subsidiary for the year ended December 31, 2011.

/s/ ERNST & YOUNG LLP

Raleigh, North Carolina

March 7, 2012

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-132330, 333-141964, 333-161236, 333-171628 and 333-179183) and Form S-8 (Nos. 333-137782, 333-144061, 333-160256 and 333-171627) of Chelsea Therapeutics International, Ltd., of our report dated March 10, 2008 on the consolidated statements of operations (not presented separately therein), changes in stockholders’ equity and cash flows (not presented separately therein) for the period from April 3, 2002 (inception) to December 31, 2007. The statement of operations and cash flow information comprise a portion of the cumulative from inception information covering the period from April 3, 2002 (inception) through December 31, 2011 appearing in the Chelsea Therapeutics International, Ltd. Annual Report on Form 10-K for the year ended December 31, 2011.

/s/ J.H. Cohn LLP

Roseland, New Jersey

March 7, 2012

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Simon Pedder, certify that:

1. I have reviewed this Annual Report on Form 10-K of Chelsea Therapeutics International, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 7, 2012	By:	/s/ Simon Pedder
		Simon Pedder
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, J. Nick Riehle, certify that:

1. I have reviewed this Annual Report on Form 10-K of Chelsea Therapeutics International, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 7, 2012	By:	/s/ J. Nick Riehle
		J. Nick Riehle
		Vice President, Administration and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Chelsea Therapeutics International, Ltd. (the “Company”) for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Simon Pedder, President and Chief Executive Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

/s/ Simon Pedder

Simon Pedder

President and Chief Executive Officer

March 7, 2012

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Chelsea Therapeutics International, Ltd. (the “Company”) for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, J. Nick Riehle, Vice President, Administration and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

/s/ J. Nick Riehle

J. Nick Riehle

Vice President, Administration and Chief Financial Officer

March 7, 2012

XML

The Company, Basis Of Presentation And Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

The Company, Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract]

The Company, Basis Of Presentation And Summary Of Significant Accounting Policies

1. The Company, Basis of Presentation and Summary of Significant Accounting Policies

The Company

Chelsea Therapeutics International, Ltd. ("Chelsea Ltd." or the "Company") is a development stage pharmaceutical company focused on the acquisition, development and commercialization of innovative pharmaceutical products. Specifically, the Company is developing Northera™ (droxidopa), a novel therapeutic agent for the treatment of symptomatic neurogenic orthostatic hypotension, or NOH, in patients with primary autonomic failure, dopamine ß-hydroxylase, or DBH, deficiency, non-diabetic autonomic neuropathy, and the reduction of falls in patients with NOH associated with Parkinson's disease, or PD, as well as other potentially norepinephrine related conditions and diseases including intradialytic hypotension, fibromyalgia and adult attention deficit hyperactivity disorder. The Company is also developing pharmaceuticals for multiple autoimmune disorders, including rheumatoid arthritis, psoriasis, inflammatory bowel disease and cancer. The Company's operating subsidiary, Chelsea Therapeutics, Inc. ("Chelsea Inc."), was incorporated in the State of Delaware on April 3, 2002 as Aspen Therapeutics, Inc., with the name changed in July 2004. In February 2005, Chelsea Inc. merged with a wholly-owned subsidiary of Chelsea Ltd.'s predecessor company, Ivory Capital Corporation ("Ivory"), a Colorado public company with no operations (the "Merger"). The Company reincorporated into the State of Delaware in July 2005, changing its name to Chelsea Therapeutics International, Ltd.

As a result of the Merger of Ivory and Chelsea Inc. in February 2005, and the reincorporation in Delaware in July 2005, Chelsea Ltd. is the reporting company and is the 100% owner of Chelsea Inc. The separate existence of Ivory ceased in connection with the Delaware reincorporation in July 2005. Except where the context provides otherwise, references to the "Company" and similar terms mean Ivory, Chelsea Ltd. and Chelsea Inc.

Basis of Presentation

Since inception, the Company has focused primarily on organizing and staffing, negotiating in-licensing agreements with partners, acquiring, developing and securing its proprietary technology, participating in regulatory discussions with the United States Food and Drug Administration, or FDA, the European Medicines Agency, or EMA and other regulatory agencies, undertaking preclinical trials and clinical trials of product candidates and, more recently, preparing for the planned commercial launch in the United States of one of its product candidates in anticipation of regulatory approval. The Company is a development stage company and has generated no revenue since inception.

The Company has sustained operating losses since its inception and expects that such losses could continue at least through the anticipated launch of Northera in 2012. Management plans to continue financing the Company's operations, as necessary, with equity issuances, debt arrangements, strategic alliances or other arrangements of a collaborative nature. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs, delay or scale back certain activities including its commercialization program, or limit or cease operations in which event its business, financial condition and results of operations would be materially harmed.

For presentation purposes, the Company has restated all information contained in this report related to shares authorized, issued and outstanding and related disclosures of weighted average shares and loss per share to reflect the results of the Delaware reincorporation in July 2005 as if the Delaware reincorporation had occurred at the beginning of each of the periods presented.

Basis of Consolidation

The accompanying financial statements present, on a consolidated basis, the financial position and results of operations of Chelsea Ltd. and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments. Management bases estimates on its historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and other highly-liquid investments with maturities of three months or less at the date of purchase.

Short-Term Investments

During 2011, the Company held short-term investments consisting of investments in certificates of deposit, or CD's, with maturities of 26-weeks as of the dates of purchase, that were purchased through the Certificate of Deposit Account Registry Service, or CDARS^®. Investments are made through a single CDARS Network member and when a large deposit is made, that institution uses the CDARS service to place funds into CDs issued by other members of the CDARS Network. Investments occur in increments below the standard Federal Deposit Insurance Corporation, or FDIC, insurance maximum ($250,000) so that both principal and interest are eligible for FDIC insurance. The Company also held, at various points during 2011, short-term investments in commercial paper and corporate bonds, all of which had been redeemed as of December 31, 2011. In addition, the Company held additional CDARS investments during the year that were classified as cash equivalents based on their 13-week maturities at the dates of purchase.

During 2010, short-term investments consisted of investments in auction rate securities, or ARS. ARS are generally long-term debt instruments for which interest rates are reset through a Dutch auction process that occurs at pre-determined calendar intervals, generally each 28 or 35 days. All of the Company's remaining investments in ARS during 2010 were classified as trading securities and were redeemed as planned under an executed settlement agreement on June 30, 2010. The Company elected the fair value option in accounting for its trading securities and, accordingly, accounted for such investments at their determined fair value, with changes in the fair value recorded in the statement of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and short-term investments. A portion of the Company's cash has been maintained in non-interest bearing accounts at federally insured financial institutions that, under the Transaction Account Guarantee Program, or TAGP, of the Federal Deposit Insurance Corporation, or FDIC, are fully insured until December 31, 2012. Previously, the Company maintained deposits in federally insured financial institutions that, under the Temporary Liquidity Guarantee Program, were fully insured through December 31, 2010 by the FDIC. In addition, the Company maintains deposits in commercial accounts in excess of federally insured amounts, primarily in fully liquid interest-bearing money market accounts, certificates of deposit, or CDs, money market funds and Treasury funds. However, while giving consideration to the expiration of the TAGP at December 31, 2012, management believes the Company is not exposed to significant credit risk for its cash and cash equivalents due to the financial position of the depository institutions in which those deposits are held and the nature of the investments.

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments, including cash and cash equivalents and accounts payable approximates fair value given their highly-liquid and short-term nature.

For financial assets and liabilities and any other assets and liabilities carried at fair value, the Company completes analyses of fair value and provides certain disclosures about fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under the fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value, the Company performs analyses on a consistent basis and designs its disclosures surrounding such analyses and the fair value determined at the balance sheet date to meet required presentation and disclosure requirements.

Property and Equipment

Property and equipment, which consists of furniture and fixtures, software and equipment, is stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the related assets. The useful life for all classes of assets other than leasehold improvements is three years. The useful life for leasehold improvements is the shorter of the expected life of the leasehold improvement or the remaining term of the lease.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value. Impairment, if any, is assessed using undiscounted cash flows. Through December 31, 2011, there has been no such impairment.

Research and Development

Research and development expenditures are expensed as incurred. The Company often contracts with third parties to facilitate, coordinate and perform agreed upon research and development activities. To ensure that research and development costs are expensed as incurred, the Company measures expense based on work performed for the underlying contract, typically utilizing a percentage-of-completion approach, and records prepaid assets or accrues expenses on a monthly basis for such activities based on the measurement of liability from expense recognition and the receipt of invoices.

These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. In the event that the Company prepays fees for future milestones, it records the prepayment as a prepaid asset and amortizes the asset into research and development expense over the period of time the contracted research and development services are performed. Most fees are incurred throughout the contract period and are expensed based on their percentage of completion at a particular date.

These contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs including shipping and printing fees. Because these fees are incurred at various times during the contract term and they are used throughout the contract term, the Company records an estimated monthly expense allocation to recognize the fees during the contract period. Fees incurred to set up the clinical trial are expensed during the setup period.

Costs related to the acquisition of technology rights and patents for which development work is still in process are expensed as incurred and considered a component of research and development costs.

The Company has contracted with a third-party to manufacture commercial quantities of Northera prior to the date it anticipates that Northera will receive final regulatory marketing approval and might perform similar activities with other product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. As such, until final approval to market any of the Company's product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development.

Loss per Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. For the periods presented, basic and diluted net loss per common share are identical as potentially dilutive securities from stock options and stock warrants would have an antidilutive effect since the Company incurred a net loss. The number of shares of common stock potentially issuable at December 31, 2011, 2010 and 2009 upon exercise or conversion that were not included in the computations of net loss per share were 8,687,452, 9,917,518 and 7,873,688, respectively.

Income Taxes

The Company determines deferred tax assets or liabilities based on the difference between the financial statement and the tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

The Company also recognizes, in its consolidated financial statements, the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position and provides explicit disclosure about the Company's uncertainties related to the income tax position, including a detailed roll-forward of tax benefits taken that do qualify for financial statement recognition.

Stock-Based Compensation

The Company accounts for its stock options using a fair value based method of accounting for stock options or similar equity instruments and requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on estimated fair values determined using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's statements of operations.

The fair value of each option award made to employees and directors during the years ended December 31, 2011, 2010 and 2009 was estimated on the date of grant using the Black-Scholes closed-form option valuation model utilizing the assumptions noted in the following table. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company's awards. The Company estimated the expected life of the options granted based on anticipated exercises in future periods assuming the success of its business model as currently forecasted. The expected dividends reflect the Company's current and expected future policy for dividends on its common stock. Effective January 1, 2011, the Company began relying exclusively on the trading and price history of the Company's stock in order to determine the expected volatility given that, as of that date, there existed sufficient trading history to be able to determine historical volatility. Prior to that, the Company examined historical volatilities for industry peers closely related to the current status of its business, but with sufficient trading history to be able to determine volatility. The Company plans to continue to analyze the expected stock price volatility and expected term assumption at each grant date as more historical data for its common stock becomes available. As of January 1, 2011, taking into consideration hiring completed and planned by the Company and the potential impact of forfeitures given the roles of these newly filled positions, the Company estimated a forfeiture rate of 3%. Prior to 2011, given the Company's low historical rate of attrition and the senior nature of the roles for a significant portion of the Company's employees, the Company estimated that it would experience no forfeitures or that the rate of forfeiture would be immaterial to the recognition of compensation expense for those options outstanding. Due to the limited amount of historical data available to the Company, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from the Company's assumptions. The table below summarizes the assumptions utilized in estimating the fair value of the stock options granted during the years ended December 31, 2011, 2010 and 2009:

	For the years ended December 31,
	2011		2010		2009
Weighted-average risk-free interest rate		1.83%		2.39%		1.75%
Weighted-average expected life of options		5 years		5 years		5 years
Expected dividend yield		0%		0%		0%
Weighted-average expected volatility		87.82%		93.95%		82.71%
Anticipated forfeiture rate		3%		n/a		n/a

The Company records compensation expense on a straight-line method over the vesting period of its options and recorded compensation expense of $2,648,741, $1,986,755 and $1,673,165 for the years ended December 31, 2011, 2010 and 2009, respectively, in conjunction with option grants made to employees and non-employee directors. As of December 31, 2011, the Company had total unrecognized compensation expense related to options granted to employees and non-employee directors of approximately $5.7 million, which will be recognized over a weighted-average remaining period of two years. The expected future amortization expense for unrecognized compensation expense for stock option grants to employees and non-employee directors at December 31, 2011 is as follows:

Year ending December 31, 2012	$	2,225,708
Year ending December 31, 2013		1,892,672
Year ending December 31, 2014		1,410,621
Year ending December 31, 2015		150,287
	$	5,679,288

To date, option awards to consultants, advisors or other independent contractors have been granted with an exercise price equal to the market price of the Company's stock at the date of the grant, have 10-year contractual terms and vest dependent upon the completion of performance commitments. As such, the value of stock options is measured at the then-current market value as of financial reporting dates and compensation cost is recognized for the net change in the fair value of the options for the reporting period, until such performance commitments are met. Once each commitment is met, the options that vest in association with that commitment are adjusted, for the last time, to the then-current fair value and compensation cost is recognized accordingly.

In determining the fair value of options granted to consultants, advisors and other independent contractors, the Company uses the Black-Scholes closed-form option valuation model in a manner consistent with its use in determining the fair value of options granted to employees and directors. However, the expected life of the options is based on the contractual lives as defined in agreements with the third parties. No such grants were made during 2011, 2010 or 2009.

XML

Consolidated Statements Of Cash Flows (Parenthetical) (USD $)	1 Months Ended					12 Months Ended
	Jan. 31, 2007	May 31, 2006	Feb. 28, 2006	Feb. 28, 2005	Dec. 31, 2004	Dec. 31, 2011	Dec. 31, 2004	Dec. 31, 2002
Consolidated Statements Of Cash Flows [Abstract]
Common stock, shares issued	0	0	0	0	0	62,034,146	0	5,428,217
Common stock, subscription receivable	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 4,625
Loan	0	0	0	0	1,745,000	0	1,745,000	0
Accrued interest	0	0	0	0	34,020	0	34,020	0
Common stock issued in conversion of loan					677,919		677,919
Common stock issued in lieu of repayment of loan, per share					$ 2.62		$ 2.62
Warrants issued to purchase common stock	0	250,000	716,666	105,516	483,701	0	483,701	0
Common stock warrants, purchase price		$ 4.31	$ 3.30	$ 2.62	$ 2.88
Common stock, aggregate fair value	433,750		705,000	26,700	14,400		14,400
Common stock, issued in conjunction with merger and recapitalization				11,911,357
Common stock warrants, exercise price		$ 4.31	$ 3.30	$ 2.62	$ 2.88
Common stock warrants, aggregate fair value	433,750		705,000	26,700	14,400		14,400
Common stock warrants, fair value	$ 433,750		$ 705,000	$ 26,700	$ 14,400		$ 14,400
Warrants unexercised and outstanding						543,766

XML

Consolidated Balance Sheets (USD $)	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 41,106,301	$ 47,593,055
Short-term investments, net	4,500,000
Prepaid contract research and manufacturing	173,592	316,363
Other prepaid expenses and other current assets	793,521	246,374
Total current assets	46,573,414	48,155,792
Property and equipment, net	291,024	180,021
Other assets	38,267	38,095
Total Assets	46,902,705	48,373,908
Liabilities and Stockholders' Equity
Accounts payable	4,866,356	2,288,241
Accrued compensation and related expenses	1,419,437	1,167,082
Accrued contract research and manufacturing	5,245,339	8,950,469
Other accrued expenses	1,706,763	780,352
Total current liabilities	13,237,895	13,186,144
Commitments
Stockholders' equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value, 100,000,000 shares authorized and 62,034,146 and 49,790,975 shares issued and outstanding, respectively	6,203	4,979
Additional paid-in capital	216,984,108	168,056,121
Deficit accumulated during the development stage	(183,325,501)	(132,873,336)
Total stockholders' equity	33,664,810	35,187,764
Total liabilities and stockholders' equity	$ 46,902,705	$ 48,373,908

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Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical) (USD $)													12 Months Ended							12 Months Ended
	Dec. 31, 2011	Dec. 31, 2011 Exercise Of Common Stock Warrants [Member]	Dec. 31, 2010 Exercise Of Common Stock Warrants [Member]	Dec. 31, 2008 Exercise Of Common Stock Warrants [Member]	Dec. 31, 2011 February [Member]	Dec. 31, 2006 February [Member]	Dec. 31, 2010 March [Member]	Dec. 31, 2007 March [Member]	Dec. 31, 2004 March [Member] License Fee [Member]	Dec. 31, 2007 April [Member]	Dec. 31, 2008 April [Member] License Fee [Member]	Dec. 31, 2004 April [Member] Chief Executive [Member]	Dec. 31, 2007 May [Member]	Dec. 31, 2006 May [Member]	Dec. 31, 2007 June [Member] Exercise Of Common Stock Warrants [Member]	Dec. 31, 2009 July [Member]	Dec. 31, 2010 September [Member]	Dec. 31, 2010 October [Member]	Dec. 31, 2007 October [Member] Exercise Of Common Stock Warrants [Member]	Dec. 31, 2008 November [Member]	Dec. 31, 2007 November [Member]	Dec. 31, 2004 December [Member]
Fair value of warrants issued finders fee amount, per share													$ 1.75
Sale and issuance of common stock, per share	$ 2.88	$ 4.20	$ 4.20	$ 4.20	$ 3.75	$ 2.77	$ 2.50	$ 4.33	$ 0.0009	$ 5.63	$ 4.90	$ 0.0009		$ 4.35	$ 4.20	$ 3.73	$ 4.49	$ 4.60	$ 4.20		$ 6.19	$ 2.45
Final adjustment to issuance costs accrued in conjunction with the sale and issuance, per share																				$ 6.19

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Consolidated Statements Of Cash Flows (USD $)	12 Months Ended			117 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2011
Operating activities:
Net loss	$ (50,452,165)	$ (37,330,069)	$ (25,771,914)	$ (183,325,501)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock-based compensation	2,648,741	1,986,755	1,673,165	8,990,656
Depreciation and amortization	116,465	75,610	69,431	421,979
Stock issued for license fee				575,023
Non-cash interest expense				34,020
Other-than temporary impairment (gain on recovery) of short-term and long-term investments			(4,390,487)
Gain on disposition of fixed assets				(2,208)
Fair value of warrants for finder's fee				433,750
Changes in operating assets and liabilities:
Prepaid contract research and manufacturing expenses, other prepaid expenses and other assets	(404,377)	(139,164)	303,665	(967,114)
Accounts payable, accrued contract research and manufacturing expenses and other accrued expenses	(200,603)	2,882,709	(2,588,850)	11,818,460
Accrued compensation and related expenses	252,355	272,386	314,821	1,419,437
Net cash used in operating activities	(48,039,584)	(32,251,773)	(30,390,169)	(160,601,498)
Investing activities:
Acquisitions of property and equipment	(227,468)	(151,836)	(14,037)	(714,473)
Proceeds from sale of assets				3,677
Purchases of short-term investments	(65,605,570)			(115,143,906)
Redemptions of short-term investments	61,105,570	11,450,000	14,575,000	110,643,906
Security deposits	(172)	38,855		(38,267)
Net cash (used in) provided by investing activities	(4,727,640)	11,337,019	14,560,963	(5,249,063)
Financing activities:
Proceeds from borrowings from affiliate				1,745,000
(Repayment of) borrowings from line of credit		(11,466,012)	4,188,544
Proceeds from exercise of stock options				80,729
Proceeds from exercise of common stock warrants	8,480,135	275,331		9,054,546
Proceeds from sales of equity securities, net of issuance costs	37,726,538	57,403,841	12,402,758	196,398,165
Receipt of recovery of short-swing profits	73,797			73,797
Recapitalization of the Company				(400,000)
Receipt of cash for stock subscription receivable				4,625
Net cash provided by financing activities	46,280,470	46,213,160	16,591,302	206,956,862
Net (decrease) increase in cash and cash equivalents	(6,486,754)	25,298,406	762,096	41,106,301
Cash and cash equivalents, beginning of period	47,593,055	22,294,649	21,532,553
Cash and cash equivalents, end of period	41,106,301	47,593,055	22,294,649	41,106,301
Supplemental disclosure of cash flow information:
Cash paid for interest		$ 70,389	$ 149,019	$ 224,328

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	62,034,146	49,790,975
Common stock, shares outstanding	62,034,146	49,790,975

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Savings And Retirement Plan

12 Months Ended

Dec. 31, 2011

Savings And Retirement Plan [Abstract]

Savings And Retirement Plan

9. Savings and Retirement Plan

During 2005, the Company established a savings and retirement plan under Section 401(k) of the Internal Revenue Code that allows eligible employees to annually contribute a portion of their annual salary to the plan. The Company matches such contributions up to a maximum of 4% of the employee's compensation, as defined. For the years ended December 31, 2011, 2010 and 2009, the Company made contributions of approximately $211,000, $143,000 and $120,000, respectively.

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Mar. 02, 2012	Jun. 30, 2011
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Entity Registrant Name	Chelsea Therapeutics International, Ltd.
Entity Central Index Key	0001333763
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		67,040,569
Entity Well-known Seasoned Issuer	No
Entity Public Float			$ 217,600,000
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No

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Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

Common Stock Offerings

On January 11, 2012, the Company raised gross proceeds of approximately $23.7 million through the sale of 4,989,275 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company's 2011 shelf registration statement, as amended effective January 5, 2012 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $63,950,000. Such registration statement became effective as of January 19, 2011. There are no more securities available under the Company's 2011 shelf registration. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.6 million, resulting in net proceeds to the Company of approximately $22.1 million.

On February 8, 2012, the Company amended its shelf registration statement, originally filed on January 26, 2012, with the SEC, under which the Company may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $100,000,000. Such registration statement, as amended, became effective as of February 9, 2012.

Grant of Stock Options

Through March 7, 2012, the Company granted options for the purchase of 1,309,000 shares of its common stock to employees and non-employee directors. These grants had a weighted average exercise price of $4.60 per share, a weighted average fair value of $3.09 per share and were granted at an exercise price equal to or greater than the closing market value of the Company's stock on the dates of grant.

Exercise of Common Stock Warrants

Through March 7, 2012, a warrant holder exercised the right to purchase 57,000 shares of the common stock of the Company, with an exercise price of $3.30 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 17,148 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise.

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Consolidated Statements Of Operations (USD $)	12 Months Ended			117 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2011
Operating expenses:
Research and development	$ 37,270,138	$ 30,871,125	$ 23,985,118	$ 145,760,423
Sales and marketing	8,067,709	2,476,494	2,289,451	17,024,576
General and administrative	5,276,146	4,154,944	4,075,663	25,223,673
Total operating expenses	50,613,993	37,502,563	30,350,232	188,008,672
Operating loss	(50,613,993)	(37,502,563)	(30,350,232)	(188,008,672)
Interest income	161,828	242,883	336,850	4,941,519
Interest expense		(70,389)	(149,019)	(258,348)
Other income (expense)			4,390,487
Net loss	$ (50,452,165)	$ (37,330,069)	$ (25,771,914)	$ (183,325,501)
Net loss per basic and diluted share of common stock	$ (0.84)	$ (0.91)	$ (0.82)
Weighted average number of basic and diluted common shares outstanding	60,136,326	41,184,623	31,549,739

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Property And Equipment

12 Months Ended

Dec. 31, 2011

Property And Equipment [Abstract]

Property And Equipment

4. Property and equipment:

Property and equipment consist of the following:

	December 31,
	2011			2010
Furniture and fixtures	$	283,231		$	186,119
Software		57,563			42,569
Leasehold improvements		39,909			24,142
Computer and office equipment		302,530			202,935
		683,233			455,765
Less—accumulated depreciation and amortization		(392,209	)		(275,744	)
	$	291,024		$	180,021

Depreciation and amortization expense was $116,465, $75,610 and $69,431 for the years ended December 31, 2011, 2010 and 2009, respectively.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

3. Fair Value Measurements

In determining fair value, the Company utilizes techniques that optimize the use of observable inputs, when available, and minimize the use of unobservable inputs to the extent possible. At December 31, 2011, assets measured at fair value on a recurring basis consisted of cash and cash equivalents of approximately $41.1 million and short-term investments (see Note 2) of $4.5 million. Based on the short-term liquid nature of these assets, the fair value, determined using level 1 inputs, is equivalent to the recorded book value.

At December 31, 2010, with the redemption of the Company's ARS investments (see Note 2), assets measured at fair value on a recurring basis consisted only of cash and cash equivalents of approximately $47.6 million. Based on the short-term liquid nature of these assets, the fair value, determined using level 1 inputs, was equivalent to the recorded book value.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

7. Stockholders' Equity

On June 1, 2010, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of capital stock from 65,000,000 shares to 105,000,000 shares and to increase the number of authorized shares of common stock from 60,000,000 shares to 100,000,000 shares.

Preferred Stock

The Company's Certificate of Incorporation provides that the Board of Directors of the Company has the authority to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders.

As of December 31, 2011, no shares of preferred stock were issued and outstanding.

Common Stock

In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In May 2006, the Company issued 63,131 shares of its common stock as consideration for a product license agreement with DSP (see Note 6), with a value of approximately $4.35 per share, or $274,621.

During April 2004, the Company issued 471,816 common shares as consideration in the product license agreement (see Note 6) and 478,330 shares were sold to Simon Pedder, the Company's President and Chief Executive Officer under the terms of his employment agreement. These shares were valued at what was, at that time, Chelsea's common stock's estimated aggregate fair value of $402 and $408, respectively, with such nominal values reflecting an asset-based valuation methodology.

During 2002, the Company issued 5,428,217 shares of its common stock for a subscription receivable of $4,625.

Warrants

At December 31, 2011 and 2010, the Company had outstanding warrants to purchase 2,875,022 and 5,255,588 shares, respectively, of the Company's common stock. Warrants outstanding as of December 31, 2011 were issued at prices ranging from $2.79 to $5.66 per share.

On March 5, 2010, in conjunction with the 2010 Offering, the Company issued warrants for the purchase of 2,345,000 shares of its common stock. These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. At December 31, 2011, warrants for the purchase of 1,286,764 shares of the Company's stock remained outstanding.

In March 2007, in conjunction with the 2007 Placement (see Note 5), the Company issued warrants for the purchase of 794,492 shares of its common stock. The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. The warrants are redeemable at par value at the Company's option in the event that the volume weighted-average closing price of the Company's common stock is greater than $12.00 per share for any 20 consecutive trading days provided the Company gives 60 business days' written notice to the holders and simultaneously call all warrants on the same terms. At December 31, 2011, all of these warrants remained outstanding.

In May 2006, in conjunction with and as compensation for activities related to the product license agreement with DSP (see Note 6) and under a finder's agreement, the Company issued warrants to purchase 250,000 shares of its common stock, with an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that did not occur until January 2007. As such, in January 2007, the Company recorded a charge based on the warrants' aggregate fair value at that date of $433,750. The warrants permit the holders to purchase the underlying common shares at $4.31 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants remained outstanding.

In February 2006, in conjunction with the 2006 Placement (see Note 5), the Company issued warrants for the purchase of 2,149,999 shares of its common stock. The allocated aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares at $4.20 each and were exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. In addition, these warrants were redeemable at the Company's option in the event that the volume weighted average closing bid price of its common stock for any 20 consecutive trading days was at least $9.00 per share. These warrants were scheduled to expire in February 2011 and, prior to that date, warrants for the purchase of 2,131,399 shares of common stock had been exercised by the holders. The remaining warrants for the purchase of 18,600 share of common stock remained unexercised and expired in February 2011.

The Company also issued warrants to its placement agent for the 2006 Placement to purchase 716,666 shares of its common stock with an exercise price of 110% of the purchase price per share based on shares sold in the 2006 Placement, or $3.30 per share and an aggregate fair value of approximately $705,000. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, warrants for the purchase of 543,766 shares of the Company's tock remained outstanding.

In February 2005, in conjunction with and as compensation for facilitating the Merger (see Note 1), the Company issued warrants for the purchase of 105,516 shares of its common stock at an exercise price of approximately $2.62 per share. The aggregate fair value of these warrants was approximately $26,700. These warrants were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants had been exercised by the holders.

In December 2004, as compensation for fundraising efforts related to the 2004 Placement (see Note 5), the Company issued warrants to purchase 483,701 shares of its common stock, with a purchase price of 110% of the purchase price per share based on shares sold in the 2004 Placement, or, as converted under terms of the Merger Agreement, approximately $2.89 per share. The aggregate fair value of these warrants was approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. These warrants were scheduled to expire in December 2011 and, prior to that date, all had been exercised by the holders.

Exercise of Common Stock Warrants

During January and February 2011, various warrant holders exercised their rights to purchase an aggregate of 1,993,444 shares of the common stock of the Company, with an exercise price of $4.20 per share, pursuant to cash exercises whereby the Company received proceeds of approximately $8.4 million. In addition, in December 2011, a warrant holder exercised its right to purchase 37,277 shares of the common stock of the Company, with an exercise price of approximately $2.89 per share, pursuant to a cash exercise whereby the Company received proceeds of approximately $0.1 million.

During 2011, various warrant holders exercised the rights to purchase 331,245 shares of the common stock of the Company, with exercise prices of $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 149,950 shares of its common stock to the various warrant holders based on the excess of the market price over the exercise price on the dates of exercise.

During 2010, a warrant holder exercised the right to purchase 26,379 shares of the common stock of the Company, with an exercise price of $2.62 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 14,298 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise. Also in 2010, a warrant holder exercised the right to purchase 1,058,236 shares of the common stock of the Company, with an exercise price of $2.79 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 661,930 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise.

During 2010, various warrant holders exercised their rights to purchase an aggregate of 65,555 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to cash exercises whereby the Company recorded proceeds of approximately $275,000.

During 2009, various warrant holders exercised rights to purchase 119,691 shares of the common stock of the Company, with an average exercise price of approximately $3.27 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 63,927 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 100,487 shares of the common stock of the Company, with an average exercise price of approximately $2.91 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 57,983 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 11,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded proceeds of $47,040.

During 2007, various warrant holders, on various dates, exercised rights to purchase 116,596 shares of the common stock of the Company, with an average exercise price of approximately $2.90 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 68,136 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

During 2007, various warrant holders, on various dates, exercised rights to purchase 61,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded cash proceeds, net of expenses, of $252,040.

During 2006, various warrant holders, on various dates, exercised rights to purchase 30,422 shares of the Company's common stock, with an exercise price of approximately $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 15,461 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

Stock Options

The Company has a stock incentive plan (the "Plan") under which incentive stock options for 7,400,000 shares of the Company's common stock may be granted. Grants under the Plan may be made to employees (including officers), directors, consultants, advisors or other independent contractors who provide services to the Company or its subsidiary.

Options awards to employees and directors are granted with an exercise price equal to or greater than the market price of the Company's stock at the date of the grant and generally have 10-year contractual terms.

During the years ended December 31, 2011, 2010 and 2009, the Company granted stock options to employees and non-employee directors for the purchase of 1,190,500, 861,000 and 938,290 shares of its common stock, respectively. The grants made during the year ended December 31, 2011 had a weighted-average exercise price of $6.91 per share, a weighted average grant date fair value of $4.60 per share and an aggregate intrinsic value at December 31, 2011 of approximately $0.1 million. The grants made during the year ended December 31, 2010 had a weighted-average exercise price of $3.10 per share, a weighted average grant date fair value of $2.24 per share and an aggregate intrinsic value at December 31, 2011 of approximately $1.7 million. The grants made during the year ended December 31, 2009 had a weighted-average exercise price of $1.99 per share, a weighted average grant date fair value of $1.33 per share and an aggregate intrinsic value at December 31, 2011 of approximately $2.9 million. The aggregate intrinsic value is calculated as the difference between the exercise prices of the underlying awards and the quoted closing price of the common stock of the Company as of December 31, 2011 for those awards that have an exercise price below the quoted closing price. Each option granted to employees and non-employee directors during 2011, 2010 and 2009 vests as to 25% of the shares on each of the first, second, third and fourth anniversary of the vesting commencement date. Following the vesting periods, options are exercisable by employees until the earlier of 90 days after the employee's termination with the Company or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions. Following the vesting periods, options are exercisable by non-employee directors until the earlier of 180 days after they cease to be a member of the Board of Directors or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions.

A summary of the Company's stock option activity and related information since inception is as follows:

	Available For Grant			Activity/ Balance			Wtd Avg Exercise Price
Establish 2002 Option Plan		1,085,648			—		$	—
Balance at December 31, 2002		1,085,648			—
2003 Activity		—			—		$	—
Balance at December 31, 2003		1,085,648			—
Cancel 2002 Stock Option Plan		(1,085,648	)		—		$	—
Establish 2004 Stock Option Plan		1,085,648			—		$	—
2004 Option grants		(363,835	)		363,835		$	0.56
Balance at December 31, 2004		721,813			363,835
2005 Plan Amendment		410,784			—
2005 Option grants		(761,451	)		761,451		$	2.66
2005 Cancellations		58,683			(58,683	)	$	2.62
2005 Exercises		—			(14,663	)	$	0.07
Balance at December 31, 2005		429,829			1,051,940
2006 Plan Amendments		1,148,568			—
2006 Option grants		(668,085	)		668,085		$	3.61
2006 Cancellations		8,802			(8,802	)	$	2.62
2006 Exercises		—			(78,683	)	$	0.06
Balance at December 31, 2006		919,114			1,632,540
2007 Plan Amendments		1,500,000			—
2007 Option grants		(665,500	)		665,500		$	5.72
2007 Exercises		—			(17,868	)	$	0.88
Balance at December 31, 2007		1,753,614			2,280,172
2008 Option grants		(837,500	)		837,500		$	6.11
2008 Cancellations		148,802			(148,802	)	$	4.95
2008 Exercises		—			(94,230	)	$	0.63
Balance at December 31, 2008		1,064,916			2,874,640
2009 Plan Amendments		855,000			—
2009 Option grants		(938,290	)		938,290		$	1.99
Balance at December 31, 2009		981,626			3,812,930
2010 Plan Amendments		1,200,000			—
2010 Option grants		(861,000	)		861,000		$	3.10
2010 Cancellations		12,000			(12,000	)	$	2.93
Balance at December 31, 2010		1,332,626			4,661,930
2011 Plan Amendments		1,200,000			—
2011 Option grants		(1,190,500	)		1,190,500		$	6.91
2011 Cancellations		40,000			(40,000	)	$	5.07
Balance at December 31, 2011		1,382,126			5,812,430

As of December 31, 2011, there were 5,812,430 options outstanding under the Plan with a weighted average remaining contractual life of 6.4 years, a weighted average grant date fair value of $2.50 per share and an aggregate intrinsic value at December 31, 2011 of approximately $8.2 million. Also, options for 3,340,660 shares had vested and were exercisable at December 31, 2011 with a weighted average remaining contractual life of 5.1 years, a weighted average exercise price of $3.86 per share, a weighted average grant date fair value of $1.92 per share and an aggregate intrinsic value at December 31, 2011 of approximately $5.3 million. During the years ended December 31, 2011, 2010 and 2009, no options were exercised. The weighted average exercise price for all vested and unvested options outstanding as of December 31, 2011, 2010 and 2009 is approximately $4.32, $3.66 and $3.79 per share, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following:

	December 31,
	2011		2010
Common stock warrants outstanding		2,875,022		3,260,944
Common stock options outstanding		5,812,430		4,661,930
Common stock options available for future grants		1,382,126		1,332,626
		10,069,578		9,255,500

At December 31, 2011, the Company had warrants for the purchase of 2,080,530 shares of its common stock outstanding for which the warrant holders could elect a net share settlement. Based on the market price as of December 31, 2011 and the exercise prices of the warrants that ranged from $2.79 to $4.31 per share, the Company would have issued, in net share settlements, 820,881 shares of its common stock in settlement of these warrants.

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Common Stock Offerings

12 Months Ended

Dec. 31, 2011

Common Stock Offerings [Abstract]

Common Stock Offerings

5. Common Stock Offerings

On February 24, 2011, the Company raised gross proceeds of approximately $40.3 million through the sale of 10,062,500 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company's 2011 shelf registration statement, amended pursuant to Rule 462(b), filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $63,950,000. Such registration statement became effective as of January 19, 2011. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $2.5 million, resulting in net proceeds to the Company of approximately $37.7 million.

On October 6, 2010, the Company raised gross proceeds of approximately $40.3 million through the sale of 8,214,286 shares of its common stock in a publicly-marketed offering. These shares were offered pursuant to the Company's shelf registration statement, as amended effective October 1, 2010 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, as filed with the SEC under which it may offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $61,566,686. Such registration statement became effective as of August 20, 2009.

In July 2010, the Company filed the required documents and became eligible to use an at-the-market common equity sales program for the sale of up to 3,000,000 shares of common stock. In September 2010, the Company sold 634,500 shares of common stock under this program resulting in net proceeds, after expenses, of approximately $2.9 million, or $4.49 per share. These shares were offered pursuant to the Company's 2009 shelf registration statement.

On March 5, 2010, the Company raised gross proceeds of approximately $18.2 million through the sale of 6,700,000 shares of its common stock plus warrants for the purchase of 2,345,000 shares of its common stock (the "2010 Offering"). These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. These shares were offered pursuant to the Company's 2009 shelf registration statement. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.5 million.

There are no more securities available under the Company's 2009 shelf registration.

On July 28, 2009, the Company raised gross proceeds of approximately $13.3 million through the sale of 3,325,000 shares of its common stock. These shares were offered pursuant to the Company's prior shelf registration statement, as amended effective July 22, 2009 pursuant to Rule 462(b) to increase the dollar amount of securities available for sale, as filed with the SEC under which the Company could offer shares of its common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings, up to a total dollar amount of $62,218,060. Such registration statement became effective as of October 11, 2007. In connection with the July 2009 offering, the Company received net proceeds, after deducting placement fees and offering expenses, of approximately $12.4 million.

On November 8, 2007, the Company raised gross proceeds of approximately $48.9 million through the sale of 7,388,172 shares of its common stock in a registered direct offering. These shares were offered pursuant to the Company's 2007 shelf registration statement. In connection with this offering, the Company paid commissions and recorded or accrued other offering-related costs of approximately $3.2 million.

There are no more securities available under the Company's 2007 shelf registration.

On March 22, 2007, the Company raised gross proceeds of approximately $12.5 million through the sale of 2,648,306 shares of its common stock plus warrants for the purchase of 794,492 shares of its common stock (the "2007 Placement"). The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. The warrants are redeemable at par value at the Company's option in the event that the volume weighted-average closing price of the Company's common stock is greater than $12.00 per share for any 20 consecutive trading days provided the Company gives 60 business days' written notice to the holders and simultaneously call all warrants on the same terms. Under the terms of the 2007 Placement, the Company agreed to and filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on August 7, 2007. In connection with this offering, the Company paid commissions and other offering-related costs of approximately $1.0 million in cash.

On February 13, 2006, the Company raised gross proceeds of approximately $21.5 million through the sale of 7,166,666 shares of its common stock plus warrants for the purchase of 2,149,999 shares of its common stock (the "2006 Placement"). The allocated aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares, for cash only, at $4.20 each and were exercisable in whole at any time, or in part from time to time, for five years from the date of issuance. (See Note 10) The warrants were redeemable at par value at the Company's option in the event that the Company's volume weighted-average closing bid price of its common stock was greater than $9.00 per share for any 20 consecutive trading days provided that the Company gave 30 business days' written notice to the holders and simultaneously called all warrants on the same terms. In connection with the 2006 Placement, the Company paid commissions and other offering-related costs of approximately $1.6 million in cash and issued warrants to the placement agent for the purchase of 716,666 shares of the Company's common stock with an exercise price of $3.30 per share, or 110% of the price of the shares sold in the offering and an aggregate fair value of approximately $0.7 million. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. Under the terms of the 2006 Placement, the Company agreed to and filed a registration statement with the SEC within 30 days of the closing for the shares of common stock sold and the shares of common stock underlying the warrants and such registration became effective on March 29, 2006.

In December 2004, Chelsea, Inc. raised gross proceeds of approximately $14.5 million through the sale of 5,532,994 shares of its common stock (the "2004 Placement"). The amount raised includes the conversion of a $1.7 million stockholder loan along with accrued interest, for which a total of 677,919 shares of common stock were issued. In connection with this offering, Chelsea, Inc. paid commissions and other offering-related costs of approximately $1.0 million in cash and issued warrants to the placement agent for the purchase of 483,701 shares of its common stock with an aggregate fair value of approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance.

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Commitments

12 Months Ended

Dec. 31, 2011

Commitments [Abstract]

Commitments

6. Commitments

Facility Lease

On October 21, 2010, the Company entered into an amendment to its lease agreement, dated March 7, 2008, to increase the office space in Charlotte, North Carolina that serves as its corporate headquarters. Occupancy of the additional space occurred in March 2011. Occupancy for the originally leased space occurred in May 2008. Upon taking delivery of the newly added space and upon expiration of a free rental period of six months from the date of delivery anticipated, or September 2011, the monthly payments increased by approximately $8,000 per month to a total of approximately $29,000. The lease, as amended, expires on or about March 11, 2016 and calls for annual rent increases of 3%. A security deposit of approximately $38,000 is being held by the lessor in conjunction with the lease. In addition, the lease initially provided an option to rent additional adjacent space. Such option expired in November 2009. The future aggregate minimum lease payments under non-cancellable operating leases are approximately $1.6 million through the lease expiration date of March 2016.

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $339,963, $202,267 and $248,404, respectively.

License Agreements

In March 2004, the Company entered into a license agreement with Dr. M. Gopal Nair, Ph.D., of the University of South Alabama College of Medicine, for the rights to use, produce, distribute and market products derived from an invention by Dr. Nair, claimed in US Patent # 5,912,251, entitled "metabolically inert anti-inflammatory and antitumor antifolates", designated by the Company as CH-1504 and related compounds. The license provides the Company exclusive, worldwide (excluding India) rights for CH-1504 and related compounds. The Company made an upfront payment in May 2004 of $150,000 and milestone payments as required by the agreement of $100,000 each in March 2006 and 2005. In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, in settlement of the $150,000 annual milestone payment liability. In March 2008, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, in settlement of the 2008 anniversary milestone payment. In April 2009, the Company made the 2009 anniversary milestone payment of $150,000. In September 2010, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. The Company is obligated to pay royalties under the agreement until the later of the expiration of the applicable patent or the applicable last date of market exclusivity after the first commercial sale, on a country-by-country basis. There are no minimum royalties required under the agreement. The Company is also obligated to make future potential milestone payments based on the achievement of specific development and regulatory approval milestones. Based on the Company's current development plans for compounds licensed under this agreement, approximately $1.5 million of payments may become due if specific milestones are achieved, subject to the Company's right to terminate the license agreement. In addition, should the Company enter into an out-licensing agreement, such payments could be offset by revenue received from the sub-licensee.

In May 2006, the Company entered into an agreement with Dainippon Sumitomo Pharma Co., Ltd. ("DSP") for a worldwide, exclusive, sub-licensable license and rights to certain intellectual property and proprietary information (the "DSP Agreement") relating to L-threo-3,4-dihydroxyphenylserine ("L-DOPS" or "droxidopa") including, but not limited to all information, formulations, materials, data, drawings, sketches, designs, testing and test results, records and regulatory documentation. As consideration for these rights, the Company paid DSP $100,000 and issued 63,131 shares of its common stock, with a value of approximately $4.35 per share, or $274,621. As additional consideration, the Company agreed to pay DSP and/or its designees (1) royalties on the sales should any compound be approved for commercial sale, and (2) milestone payments, payable upon achievement of milestones as defined in the DSP Agreement. In February 2008, the Company made a milestone payment under the DSP Agreement of $500,000 related to patient dosing in a Phase III study. In December 2011, the Company made a milestone payment under the DSP Agreement of $750,000 related to submission of an NDA to the FDA and has remaining potential future milestone payments, subject to the Company's right to terminate the DSP Agreement, totaling $2.5 million. The Company and DSP also initiated, and the Company agreed to fund, activities focused on modifying the manufacturing capabilities of DSP in order to expand capacity and comply with regulations and requirements of the FDA. Based on work performed by DSP as of December 31, 2011, the Company had recorded expense of approximately $3.1 million and had a remaining liability of approximately $60,000 at December 31, 2011.

In conjunction with and as consideration for activities related to the execution of the DSP Agreement, the Company entered into a Finder's Agreement with Paramount BioCapital, Inc. ("Paramount"). In May 2006, pursuant to the Finder's Agreement, the Company issued warrants for the purchase of 250,000 shares of its common stock at an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that occurred in January 2007 and, accordingly, the Company recorded a charge for the fair value of the warrants at January 2007 of $433,750. The Company utilized the Black-Scholes-Merton valuation model for estimating the fair value of the warrants at the date the condition lapsed, based on a risk-free interest rate of 4.79%, an expected life of three years, an expected dividend yield of 0%, an expected volatility of 66.01% and no estimated forfeitures. As additional consideration, the Company agreed to (1) make future milestone payments to Paramount, upon achievement of milestones as defined in the Finder's Agreement, (2) pay royalties on sales should any licensed compound become available for commercial sale, and (3) compensate a stated third-party consultant for services rendered in the evaluation of the transaction with DSP. The Company has remaining potential future milestone payments under the Finder's Agreement of $150,000.

The amount expended under these agreements and charged to research and development expense was $750,000 during the year ended December 31, 2011, $100,000 during the year ended December 31, 2010 and $150,000 during the year ended December 31, 2009.

Development and Commercialization Agreement

Effective May 2006, the Company entered into a development and commercialization agreement (the "Development Agreement") with Active Biotech AB ("AB") to co-develop and commercialize the I-3D portfolio of orally active, dihydroorotate dehydrogenase ("DHODH") inhibiting compounds for the treatment of autoimmune diseases and transplant rejection. Under the terms of the Development Agreement, an initial payment of $1.0 million was made to AB at the time of the Development Agreement with such funds utilized to cover the initial costs of research and development efforts jointly approved by both parties. At December 31, 2006, the Company had expensed the entire $1.0 million payment and expensed additional costs of $0.3 million. During 2007, the Company expensed costs of $0.6 million under the program related to costs of research and development. During 2008, the Company and AB ceased joint discovery efforts on this portfolio.

In April 2008, the Company and AB entered into a termination and assignment agreement (the "Termination Agreement"), whereby AB discontinued its participation in the I-3D co-development program and assigned its entire right, title and interest in the portfolio to the Company in exchange for royalties on future sales. The Termination Agreement also eliminated the Company's obligation related to payment of potential future development milestones under the Development Agreement. The Company has recorded no costs related to this program during 2011, 2010 or 2009.

Contract Research and Manufacturing Purchase Obligations

The Company often contracts with third parties to facilitate, coordinate and perform agreed upon research and development and manufacturing activities. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue its research and manufacturing activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

In addition, the Company has contracted with a third party for the manufacture of commercial quantities of Northera prior to the date it anticipates that Northera will receive final marketing approval and might perform similar activities for other of its product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. This risk notwithstanding, the Company initiated such activities with its primary supplier of active pharmaceutical ingredient of Northera in December 2010 and had incurred expenses of approximately $3.8 million and approximately $1.9 million related to these activities during 2011 and 2010, respectively. Until final approval to market any of the Company's product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development. The Company intends to continue such activities during 2012 in order to build pre-launch inventories of Northera prior to final governmental approval. In addition, in October 2011, the Company committed to the purchase of active pharmaceutical ingredient from DSP to be used in the production of commercial inventory in preparation for the market launch of Northera in the United States. The value of this obligation is approximately $7.2 million. A small initial shipment of this material was delivered in the first quarter of 2012. Although the remainder of this material could be shipped at any time within a two-year period following the completion of its manufacture, it is not anticipated to be shipped prior to the commercial launch of Northera in the United States.

Commitments under research and development programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $8.3 million at December 31, 2011.

Other Contractual Obligations

During 2011, the Company contracted with various third parties to facilitate, coordinate and perform agreed upon commercialization support activities in anticipation of the planned launch of Northera in the United States in 2012. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue these activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

Business activities being performed under these contracts include, but are not limited to, market research, marketing and advertising planning and development, contracted Medical Science Liaison professionals, sales territory mapping, publication planning, sales force recruiting, sales operations support and planning, messaging and website development, public relations and information technology support and planning.

Commitments under these programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $12.2 million at December 31, 2011.

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

All of the Company's tax positions meet the more-likely-than-not recognition threshold, presuming that such tax position would be examined by a relevant taxing authority that has full knowledge of all relevant information. As such, a tabular presentation of those tax benefits is not presented.

From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although, historically, there have been no such assessments and the Company believes that any potential future assessments would be minimal and immaterial to the Company's results of operations and financial position. In the event the Company receives an assessment for interest and/or penalties, it would be classified in the consolidated financial statements as general and administrative expense.

The Company and its subsidiaries file tax returns in the United States and a small number of state jurisdictions. The statute of limitations for examination of the Company's returns has expired for years prior to 2008. There are no income tax examinations currently in process nor has the Company been subject to examination since inception. The material jurisdictions subject to potential examination by taxing authorities for open tax years primarily include the United States and the State of North Carolina.

The components of the deferred tax assets and the valuation allowance are shown below. The state carryforwards are shown net of federal tax.

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforward—Federal	$	56,534,714		$	41,803,101
Net operating loss carryforward—State		7,648,814			5,655,714
Licensing costs		1,105,848			816,348
Compensation costs and deferred stock compensation		1,271,272			871,234
Inventory purchases prior to commercialization		2,228,108			746,910
Other temporary differences		(269,087	)		(105,334	)
		68,519,669			49,787,973
Less valuation allowance		(68,519,669	)		(49,787,973	)
	$	—		$	—

The reasons for the difference between actual income tax benefit and the amount computed by applying the statutory federal income tax rate to the losses before income tax benefit are as follows:

	December 31,
	2011			2010
Rate reconciliation:
Statutory federal rate		-34.00	%		-34.00	%
State income tax rate (net of federal benefit)		-4.60	%		-4.60	%
Certain non-deductible expenses		1.47	%		1.41	%
Effect of increase in valuation allowance		37.13	%		37.19	%
Effective tax rate		0.00	%		0.00	%

Given the Company's history of incurring operating losses, the Company's ability to realize its deferred tax assets is not considered more likely than not. As a result, a valuation allowance equal to the total deferred tax assets has been established. The valuation allowance as of December 31, 2011 and 2010 was approximately $68.5 million and $49.8 million, respectively. The increase in the valuation allowance during 2011 is primarily related to the increase in net operating losses.

At December 31, 2011, the Company had potentially utilizable federal and state net operating loss carryforwards of approximately $166.3 million. The net operating loss carryforwards will be begin to expire in various amounts for federal and state tax purposes through 2025 and 2020, respectively.

Under limitations imposed by Internal Revenue Code Section 382, or IRC§382, certain potential changes in ownership of the Company, which may be outside the Company's knowledge or control, may restrict future utilization of these NOL carryforwards. During 2011, the Company undertook, with the assistance of its tax advisors, a detailed study in order to determine any potential IRC§382 limitations on its ability to utilize, in future periods, its federal NOL carryforwards. This detailed study resulted in a determination that there had been two ownership changes previously, as defined by IRC§382, limiting the Company's NOLs available for federal tax purposes to approximately $104.9 million at December 31, 2011. However, all NOLs would be available for use prior to their expiration, resulting in no adjustment to the tax provision and disclosure at December 31, 2011. In future years, after utilizing the $104.9 million of NOLs currently available and any unrestricted future tax losses generated, the use of the remainder of the Company's NOLs at December 31, 2011 would be limited to approximately $8.9 million annually for years from 2012 to 2013, approximately $7.6 million for 2014, approximately $4.1 million annually for the years from 2015 to 2022 and the remainder in 2023. Any portion of an NOL limited by IRC§382 not used in a given year can be carried forward to subsequent years. Any NOLs generated during periods since the date of the most recent ownership change and those that might be generated in any future periods can be used without restriction unless a future ownership change occurs.

Although a detailed study has not been completed, similar limitations might be expected under Internal Revenue Code Section 383, or IRC§383, on the utilization of research and development tax credits that may be available to the Company. The Company is currently unable to fully estimate the impact of any such available research and development tax credits and any related IRC§383 limitations nor has it undertaken the steps necessary to fully estimate the potential benefits that may be available to it from the utilization of research and development tax credits in future periods.

In November 2010, the Company received proceeds of approximately $488,000 for two grants awarded under the Qualifying Therapeutic Discovery Project Credit. These grants were awarded to the Company for research and development efforts related to its two late-stage clinical programs and were classified in the consolidated financial statements as a reduction in research and development expense.

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Consolidated Statements Of Changes In Stockholders' Equity (USD $)	February [Member] Common Stock [Member] USD ($)	February [Member] Additional Paid-In capital [Member] USD ($)	February [Member] USD ($)	March [Member] License Fee [Member] Common Stock [Member] USD ($)	March [Member] License Fee [Member] Additional Paid-In capital [Member] USD ($)	March [Member] License Fee [Member] USD ($)	March [Member] Common Stock [Member] USD ($)	March [Member] Additional Paid-In capital [Member] USD ($)	March [Member] USD ($)	April [Member] Founders [Member] Common Stock [Member]	April [Member] Founders [Member] Additional Paid-In capital [Member]	April [Member] Founders [Member] Unpaid Subscription On Common Stock [Member]	April [Member] License Fee [Member] Common Stock [Member] USD ($)	April [Member] License Fee [Member] Additional Paid-In capital [Member] USD ($)	April [Member] License Fee [Member] USD ($)	April [Member] Chief Executive [Member] Common Stock [Member] USD ($)	April [Member] Chief Executive [Member] Additional Paid-In capital [Member] USD ($)	April [Member] Chief Executive [Member] USD ($)	April [Member] Common Stock [Member] USD ($)	April [Member] Additional Paid-In capital [Member] USD ($)	April [Member] USD ($)	May [Member] License Fee [Member] Common Stock [Member] USD ($)	May [Member] License Fee [Member] Additional Paid-In capital [Member] USD ($)	May [Member] License Fee [Member] USD ($)	May [Member] Additional Paid-In capital [Member] USD ($)	May [Member] USD ($)	June [Member] Exercise Of Common Stock Warrants [Member] Common Stock [Member] USD ($)	June [Member] Exercise Of Common Stock Warrants [Member] Additional Paid-In capital [Member] USD ($)	June [Member] Exercise Of Common Stock Warrants [Member] USD ($)	July [Member] Common Stock [Member] USD ($)	July [Member] Additional Paid-In capital [Member] USD ($)	July [Member] USD ($)	September [Member] Common Stock [Member] USD ($)	September [Member] Additional Paid-In capital [Member] USD ($)	September [Member] USD ($)	October [Member] Exercise Of Common Stock Warrants [Member] Common Stock [Member]	October [Member] Exercise Of Common Stock Warrants [Member] Additional Paid-In capital [Member] USD ($)	October [Member] Exercise Of Common Stock Warrants [Member] USD ($)	October [Member] Common Stock [Member] USD ($)	October [Member] Additional Paid-In capital [Member] USD ($)	October [Member] USD ($)	November [Member] Common Stock [Member] USD ($)	November [Member] Additional Paid-In capital [Member] USD ($)	November [Member] USD ($)	December [Member] Common Stock [Member] USD ($)	December [Member] Additional Paid-In capital [Member] USD ($)	December [Member] USD ($)	Exercise Of Common Stock Warrants [Member] Common Stock [Member] USD ($)	Exercise Of Common Stock Warrants [Member] Additional Paid-In capital [Member] USD ($)	Exercise Of Common Stock Warrants [Member] USD ($)	Common Stock [Member] USD ($)	Additional Paid-In capital [Member] USD ($)	Unpaid Subscription On Common Stock [Member] USD ($)	Deferred Stock-Based Compensation [Member] USD ($)	Deficit Accumulated During The Development Stage [Member] USD ($)	Total USD ($)
Balance at Dec. 31, 2003																																																			$ 542	$ 4,083	$ (4,625)
Balance, shares at Dec. 31, 2003																																																			5,428,217
Common stock issued during period				47	355	402										48	360	408																											554	13,550,255	13,550,809
Common stock issued during period, shares				471,816												478,330																													5,532,994
Receipt of cash for stock subscription receivable																																																					4,625			4,625
Deferred stock-based compensation																																																				33,525		(33,525)
Amortization of deferred stock-based compensation																																																						1,529		1,529
Net loss																																																							(3,016,559)	(3,016,559)
Balance at Dec. 31, 2004																																																			1,191	13,588,578		(31,996)	(3,016,559)	10,541,214
Balance, shares at Dec. 31, 2004																																																			11,911,357
Recapitalization of the Company (See Note 1)																																																			46	(400,046)				(400,000)
Recapitalization of the Company (See Note 1), shares																																																			457,168
Employee stock options exercised																																																			1	998				999
Employee stock options exercised, shares																																																			14,663
Adoption of SFAS 123R																																																				(31,996)		31,996
Amortization of deferred stock-based compensation																																																				99,319				99,319
Variable accounting for stock options granted to third party																																																				58,594				58,594
Net loss																																																							(7,915,722)	(7,915,722)
Balance at Dec. 31, 2005																																																			1,238	13,315,447			(10,932,281)	2,384,404
Balance, shares at Dec. 31, 2005																																																			12,383,188
Common stock issued during period	717	19,854,935	19,855,652																			6	274,615	274,621
Common stock issued during period, shares	7,166,666																					63,131
Common stock issued cashless							2	(2)
Common stock issued cashless, shares							15,461
Employee stock options exercised																																																			8	5,072				5,080
Employee stock options exercised, shares																																																			78,683
Variable accounting for stock options granted to third party																																																				4,192				4,192
Stock-based compensation																																																				283,983				283,983
Net loss																																																							(8,671,376)	(8,671,376)
Balance at Dec. 31, 2006																																																			1,971	33,738,242			(19,603,657)	14,136,556
Balance, shares at Dec. 31, 2006																																																			19,707,129
Common stock issued during period							265	11,476,412	11,476,677				3	149,997	150,000												6	246,994	247,000								5,040	5,040				739	45,754,030	45,754,769
Common stock issued during period, shares							2,648,306						26,643														60,000									1,200						7,388,172
Common stock issued cashless																																																			6	(6)
Common stock issued cashless, shares																																																			68,136
Fair value of warrants issued in May 2006 in consideration of finders fee at approximately $1.75 per share for which vesting was conditioned on an even that occurred in January 2007																									433,750	433,750
Employee stock options exercised																																																			2	15,704				15,706
Employee stock options exercised, shares																																																			17,868
Stock-based compensation																																																				828,626				828,626
Net loss																																																							(15,081,545)	(15,081,545)
Balance at Dec. 31, 2007																																																			2,992	92,648,789			(34,685,202)	57,966,579
Balance, shares at Dec. 31, 2007																																																			29,917,454
Common stock issued during period																			3	149,997	150,000																											1	47,039	47,040
Common stock issued during period, shares																			30,612																													11,200
Common stock issued cashless																																																6	(6)
Common stock issued cashless, shares																																																57,983
Final adjustment to issuance costs accrued in conjunction with the sale and issuance of common stock																																											5,733	5,733
Employee stock options exercised																																																			9	58,935				58,944
Employee stock options exercised, shares																																																			94,230
Stock-based compensation																																																				1,405,752				1,405,752
Net loss																																																							(35,086,151)	(35,086,151)
Balance at Dec. 31, 2008																																																			3,011	94,316,239			(69,771,353)	24,547,897
Balance, shares at Dec. 31, 2008																																																			30,111,479
Common stock issued during period																														333	12,402,425	12,402,758
Common stock issued during period, shares																														3,325,000
Common stock issued cashless																																																6	(6)
Common stock issued cashless, shares																																																63,927
Stock-based compensation																																																				1,673,165				1,673,165
Net loss																																																							(25,771,914)	(25,771,914)
Balance at Dec. 31, 2009																																																			3,350	108,391,823			(95,543,267)	12,851,906
Balance, shares at Dec. 31, 2009																																																			33,500,406
Common stock issued during period							670	16,762,253	16,762,923																								63	2,851,313	2,851,376				821	37,788,721	37,789,542							7	275,324	275,331
Common stock issued during period, shares							6,700,000																										634,500						8,214,286									65,555
Common stock issued cashless																																																			68	(68)
Common stock issued cashless, shares																																																			676,228
Stock-based compensation																																																				1,986,755				1,986,755
Net loss																																																							(37,330,069)	(37,330,069)
Balance at Dec. 31, 2010																																																			4,979	168,056,121			(132,873,336)	35,187,764
Balance, shares at Dec. 31, 2010																																																			49,790,975
Common stock issued during period	1,006	37,725,532	37,726,538																																													4	107,667	107,671	199	8,372,265				8,372,464
Common stock issued during period, shares	10,062,500																																															37,277			1,993,444
Common stock issued cashless																																																15	(15)
Common stock issued cashless, shares																																																149,950
Recovery of short-swing profits, net of expenses																																																				73,797				73,797
Stock-based compensation																																																				2,648,741				2,648,741
Net loss																																																							(50,452,165)	(50,452,165)
Balance at Dec. 31, 2011																																																			$ 6,203	$ 216,984,108			$ (183,325,501)	$ 33,664,810
Balance, shares at Dec. 31, 2011																																																			62,034,146

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Short-Term Investments

12 Months Ended

Dec. 31, 2011

Short-Term Investments [Abstract]

Short-Term Investments

2. Short-term Investments

As of December 31, 2011, the Company held short-term investments of $4.5 million consisting of investments in CD's with maturities of 26-weeks as of the dates of purchase. Such investments, made at various times during 2011, were purchased through CDARS. During 2011, the Company also held short-term investments in commercial paper and corporate bonds that, at maturity, were fully redeemed.

During 2010, the Company liquidated its remaining investments in auction rate securities, or ARS, by exercising the ARS Rights received under a settlement agreement, finalized in the fourth quarter of 2008, with UBS Financial Services, Inc., or UBS. At January 1, 2010, the Company held total investments in ARS with a par value of approximately $11.45 million that were classified as trading securities and held at UBS. These ARS investments represented interests in collateralized debt obligations supported by pools of student loans and none were collateralized by mortgage, credit card or insurance securitizations. The ARS Rights provided the Company with the ability to sell the ARS, along with the ARS Rights, to UBS at the par value of the ARS no earlier than June 30, 2010 and were to expire on July 2, 2012. The ARS Rights were not transferable, not tradable, were not quoted or listed on any securities exchange or any other trading network, were recorded at fair value and were classified as short-term investments. Additionally, UBS also agreed that an affiliate would provide the Company with a no net-cost line of credit. Under the terms of the line of credit agreements, the Company received funds in December 2008 and March 2009 equivalent to 100% of the par value of the Company's ARS investments, providing the Company with full liquidity for all its investments in ARS held with UBS. Upon exercise of the ARS Rights on June 30, 2010 and, after applying the proceeds of the redemptions of those ARS Rights, the Company had no remaining liability under the line of credit. During 2010, based upon analysis of fair value, the Company recorded no additional trading loss related to its trading securities or any corresponding adjustment to the fair value of its ARS or ARS Rights, prior to redemption on June 30, 2010.

During the year ended December 31, 2009, the Company recorded a gain of approximately $4.1 million from the recovery of the other-than-temporary impairment that the Company had recorded against investments with an aggregate par value of $11.6 million, classified as available-for-sale, that were redeemed during 2009. Also, during the year ended December 31, 2009, the Company recorded a gain of approximately $0.2 million related to the increased value of the ARS Rights due to the additional funding received under the line of credit and the resulting elimination of any performance risk associated with the settlement. In addition, the Company recorded the recovery of $0.1 million of previously recorded other-than-temporary impairment losses related to $0.3 million in partial redemptions at par of its available-for-sale ARS investments during 2009.