March 21, 2011 / 11:12 AM / in 8 years

UPDATE 4-XenoPort to stop development of heartburn drug

* Says drug fails to meet main goal of a mid-stage trial

* To continue planned development of drug for other indication

* Shares down 12 percent to $5.87 each (Adds company and analyst comments, updates share activity)

By Anand Basu

BANGALORE, March 21 (Reuters) - XenoPort Inc will stop developing its experimental drug to treat heartburn after it failed an important trial, sending its shares down 12 percent weeks before a U.S. regulator decides the fate of its drug to treat restless leg syndrome.

The company was developing the drug, arbaclofen placarbil, as a combination therapy for people who suffer from gastroesophageal reflux disease (GERD), but do not get complete relief from the medicines that doctors prescribe to treat it.

A class of drugs called proton pump inhibitors, or PPIs, such as AstraZeneca’s Nexium and Prilosec, are the current standard of care for patients with GERD.

“This was a binary event with only an estimated 50-60 percent chance of success, so it is a key setback for XenoPort,” RBC Capital Markets analyst Michael Yee wrote in a note to clients.

An upcoming regulatory decision on XenoPort’s restless legs syndrome (RLS) drug on April 6 could prove to be a “transforming event” for the company, Yee said.

In May, the U.S. Food and Drug Administration sought additional pre-clinical data on the safety of the drug Horizant.

Yee, who has an “outperform” rating on XenoPort shares, said Horizant has at least a 50 percent chance of getting FDA approval in April.

“Now all the focus and significant valuation of the stock have shifted to the success of Horizant,” said Maxim Group analyst Yale Jen.

XenoPort’s partner GlaxoSmithKline could return all development and commercialization rights for Horizant if the FDA declines to approve the drug, Jen said.

XenoPort and Glaxo also are developing Horizant as a treatment for pain related to shingles.

XenoPort has enough cash to fund operations until the fourth quarter of 2013 if Horizant gets a FDA approval, and into the third quarter of 2012 if the FDA rejects the drug, Chief Executive Ronald Barrett told analysts on a conference call.

As of Dec. 31, 2010, XenoPort had cash and cash equivalents of $109 million.

XenoPort, which is also developing arbaclofen placarbil as a treatment for spasticity in multiple sclerosis patients, said it will continue its planned late-stage trial of the drug for that condition.

XenoPort shares, which have lost 17 percent of their value since GlaxoSmithKline returned all rights of Horizant outside the United States, were down 12 percent at $5.87 on the Nasdaq stock market on Monday.

Over 4.7 million shares changed hands by 11:52 ET — more than five times the stock’s 10-day average volumes. (Reporting by Anand Basu in Bangalore. Editing by Robert MacMillan)

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