XenoPort Inc said it would stop development of an experimental multiple sclerosis treatment it planned to launch in 2015 after a late-stage trial failed to show significant improvement over a placebo.
Shares of the company fell 26 percent to $5.03 in morning trade on the Nasdaq.
"This is disappointing, given (the drug's) promising mid-stage data," Wells Fargo analyst Brian Abrahams wrote in a note to clients. "We had modeled sales of $77 million by 2017 for the product."
The drug, arbaclofen placarbil, was XenoPort's only product in late-stage trial, according to information on the company's website.
A XenoPort executive said on a conference call that the company's operating plan had included costs associated with a potential launch, and that it would take several weeks to determine the savings from the termination.
Xenoport spent about $13.2 million in 2012 on the development of the drug, according to a March regulatory filing.
The executive said more resources could be allocated to the company's experimental drug XP23829 to treat relapsing-remitting multiple sclerosis, as well as marketing of its restless legs syndrome drug Horizant, its only drug on the market.
XP23829, currently being tested in an early-stage trial, is a derivative of Biogen Idec's multiple sclerosis drug Tecfidera. Tecfidera was approved by the U.S. Food and Drug Administration on March 27.
"(Termination of the study) should enable resources to become more focused on XP23829, which we view as the company's core value driver," Wells Fargo's Abrahams wrote in the note.
XenoPort ended its collaboration on Horizant with marketing partner GlaxoSmithKline PLC in November.
XenoPort said net sales of Horizant in the U.S. as recorded by GSK were $6.5 million in 2012, according to a regulatory filing. The drug is marketed by Astellas Pharma Inc as Regnite in Japan.
The company said on Monday that arbaclofen placarbil did not show statistical significance compared to the placebo on two clinical scales - severity of symptoms and response to treatment, and spasticity.
The drug, which was intended to treat spasticity, stiffness and involuntary multiple spasms, was tested on 228 multiple sclerosis patients in the United States.
Dosages of 30 mg and 45 mg were administered twice a day.
XenoPort said seven patients experienced adverse events, none of which were related to the treatment.
Acorda Therapeutics's Zanaflex, JHP Pharmaceuticals LLC's Dantrium and CNS Therapeutics's Gablofen are some of the approved treatments for spasticity -- an unusual tightness, stiffness, or "pull" of muscles.
XenoPort had stopped the development of arbaclofen placarbil as a heartburn drug in March 2011, after it failed in a mid-stage trial. (link.reuters.com/hab38t)
The company's shares were down 11 percent at $6 by midday on the Nasdaq.
(Reporting by Esha Dey and Vrinda Manocha in Bangalore; Editing by Roshni Menon)