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Xenoport Shareholders Run Their Restless Legs

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The FDA rejects a key drug partnership with GlaxoSmithKline.

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Drug companies should know that it's a bad idea to put all of their shareholders' hopes into a one-drug basket, even if that drug has been on the market in a generic form for years.

XenoPort (XNPT) will probably have learned that lesson a little too late. The biopharmaceutical watched helplessly on Thursday as its stock plunged more than 65% to linger around $6.50 (the stock had been trading as high as $27.18 over the last 52 weeks).The stock collapse came after XenoPort and its partner, GlaxoSmithKline (GSK), received a complete response letter from the FDA concerning a drug it was developing for Restless Leg Syndrome.

The FDA's Center of Drug Evaluation and Research issues a complete response letter once the approval process has been completed and, in this case, the FDA isn't quite satisfied with what it's seen. The letter to XenoPort and GSK indicated that the agency didn't think the risk-reward profile of the drug, Horizant, was favorable enough to allow it into the public realm.

According to the companies, the agency is worried about the risk of pancreatic acinar cell tumors that showed up in rats during pre-clinical testing. Yet, it's unknown whether this translates to humans. "Our caution going into the PDUFA date centered around the commercial outlook for Horizant in RLS and the profit split with GSK so this response from the FDA is a surprise," wrote Leerink Swann analyst Steve Yoo in a note to investors. "The company noted that this was the first time the FDA mentioned the preclinical cancer signal."

What probably has XenoPort shareholders so irked is the fact that this drug seemed like a shoe-in; it's been on the market for years in generic form under the name gabapentin and prior to that was marketed by Pfizer (PFE). XenoPort's mainstay is to take drugs that are already out there and make them easier to absorb into the bloodstream from the digestive tract. XenoPort took this drug and did exactly that, but has been developing the drug for different uses than it's already approved to treat -- gabapentin is currently on the market in generic form for the treatment of epilepsy.

"FDA acknowledged that similar findings [concerning cancer risks] were known for gabapentin at the time of its approval for refractory epilepsy, but concluded that the seriousness and severity of refractory epilepsy justified the potential risks," noted the companies in a statement to the press.

Now that the FDA has made it clear that Horizant isn't worth risking cancer to help with Restless Leg Syndrome, XenoPort shareholders are left wondering if the company will be able to pursue the drug for any indications. (XenoPort is currently investigating the use of gabapentin enacarbil in the prevention of migraines, post-herpetic neuralgia, and painful diabetic neuropathy.)

Leerink Swann analyst Yoo points out that the incidence of this type of pancreatic cancer is low. "Pancreatic acinar cancers represent about 1% of pancreatic cancer cases in US, which translates to about 400-500 new cases per year. Due to the widespread use of [gabapentin], we believe if it were a real signal, the rate may be higher."

On the bright side, this works out well for GlaxoSmithKline, which announced earlier in the month that it was ending some of its research and discovery programs in the neuroscience areas of depression and pain -- meaning an end to its work with XenoPort.
No positions in stocks mentioned.

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