* Analysts surprised by FDA decision
* At least 4 brokerages downgrade stock
* Drug development for neuropathic pain may be delayed: Co
* XenoPort shrs plunge 67 pct, Depomed shrs fall 21 pct (Recasts; adds details from conference call; updates share movement)
By Jennifer Robin Raj
BANGALORE, Feb 18 (Reuters) - Shares of XenoPort Inc XNPT.O plunged 67 percent to a lifetime-low Thursday, a day after the company’s drug Horizant for restless leg syndrome (RLS) was denied approval, surprising Wall Street.
The U.S. Food and Drug Administration issued a complete response letter for the drug because of a potential link to cancer found in rats. [ID:nN17134046]
The drug is a long-lasting version of gabapentin, which is approved for refractory epilepsy. The FDA acknowledged that similar findings were known for gabapentin at the time of its approval but said the relative seriousness of that condition justified the potential risks.
XenoPort’s Chief Executive Ronald Barrett said in a conference call that the company had not been aware of the agency’s concerns regarding potential cancer risk until it received the complete response letter on Wednesday.
“It certainly did surprise us,” he said, adding that the company was unable to provide specific information on its next steps.
XenoPort has licensed the rights to develop and commercialize the drug to Astellas Pharma Inc (4503.T) in Japan and five Asian countries and to GSK in all other regions of the world.
XenoPort’s Barrett said the company has not had a detailed discussion yet with Astellas, which recently filed a marketing application for Horizant in Japan.
Wedbush PacGrow LifeSciences analyst Gregory Wade said he did not see any impact on Astellas’ application from the FDA’s action.
Horizant is also being studied as a treatment for neuropathic pain, painful diabetic neuropathy and migraine prophylaxis.
“Nothing in the FDA letter precludes the further development of Horizant for migraine prophylaxis or any other indication,” XenoPort’s Barrett said.
However, he said that, “until such time that GSK and we determine the path forward with the FDA on this preclinical issue, I think it is fair to say the complete response letter will delay any future development of Horizant for neuropathic pain.”
Analysts saw a low probability for approval of Horizant in RLS and said the FDA’s concerns hurt the drug’s chances in other indications as well.
At Sept. 30, 2009, XenoPort had cash and equivalents of $156.6 million.
“Without commercialization of Horizant, we believe it will be difficult for XenoPort to become profitable,” Lazard Capital analyst William Tanner said.
Shares of rival Depomed Inc (DEPO.O), which is also developing a formulation of gabapentin for neuropathic pain, fell as much as 21 percent.
Depomed and its partner Belgian drugmaker Solvay (SOLB.BR), are expected to submit the marketing application for their drug to the FDA by the end of first quarter.
Investors are looking for some clarification from Depomed whether they are at risk as well, Roth Capital Partners analyst Scott Henry said.
Depomed was not available for comment.
Shares of XenoPort were down more than 65 percent at $6.75 in morning trade. They had touched a low of $6.43 earlier in the session. (Reporting by Jennifer Robin Raj in Bangalore; Additional reporting by Anand Basu; Editing by Aradhana Aravindan)