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Xenoport Shares Offer Compelling Upside Potential

 May 29, 2012 06:24 PM

(By Mani) Shares of biotechnology company Xenoport, Inc. (NASDAQ:XNPT) offer compelling upside potential on positive commentary from management in investor meetings and a strong portfolio offering various expansion opportunities.

California-based Xenoport uses a technology platform called Transported Prodrug to create drugs with improved absorption, safety and efficacy. The company is partnered with U.K-based GlaxoSmithKline, and Astellas in Asia to develop XP-13512 (gabapentin), which is now FDA approved as Horizant for restless legs syndrome (RLS).

Xenoport is also investigating the R-isoform of baclofen for spasticity (XP-19986) and '829 for RRMS and psoriasis.

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Last week, the company submitted an Investigational New Drug (IND) application to the U.S. Food and Drug Administration (FDA) to begin clinical studies of XP23829 as a potential treatment for relapsing-remitting multiple sclerosis (RRMS).

XP23829 is its key asset, which could have partnership interest and for which they just received new composition of matter patents until 2029.

The 829 is a prodrug of MHF (methyl hydrogen fumarate), the active ingredient in BG-12 that confers its anti-inflammatory and cellular modulatory properties, and for which positive Phase III topline data from Biogen Idec (NASDAQ:BIIB) were recently shown in reducing relapses in RRMS patients.

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In the preclinical studies, 829 has shown good solubility and absorption, with the potential to deliver more constant and stable blood levels of MHF.

"These better properties could allow '829 to be formulated into a once-daily, best-in-class, oral regimen for treatment of RRMS. Less frequent dosing and better tolerability could appreciably advance the commercial potential of a BG-12-like treatment," RBC Capital Markets analyst Michael Yee wrote in a note to clients.

Xenoport has filed for composition of matter patents and expects patent protection to 2029, while Biogen Idec currently has methods of use patents on BG-12 that extend until 2022.

One hypothesis is BIIB would be interested in this asset as a defensive hedge and future long-term life-cycle extension, and/or as a way to reduce future outer year "milestone" payments on current BG-12.

"We think more likely is a spec pharma/pharma could be interested as a 2nd in class drug as are many similar interferons on the market or as an oral psoriasis play (BIIB isn't going after derm)," Yee noted.

Meanwhile, in April, Xenoport and partner Astellas received formal approval of Regnite and pricing at $2.40/day (or $895/year), comparable to the US price of $1,188/year. The product will be launched in July, and Astellas, which has a decade or more of experience in the sleep/neurology market, is committed to building the RLS market in the region.

New public information from the Japanese Ministry of Health, Labour, and Welfare estimate peak sales of Regnite to reach 3.8 billion yen (or $50 million)

"We believe this implies only 4% penetration into the 1.5M RLS theoretical sufferers in Japan. The Astellas region also includes Korea, the Philippines, Indonesia, Thailand, and Taiwan, so the Asian region could be a $100M+ opportunity in the longer term," the analyst added.For the US and based on prior Japan-to-US sales ratios of some drugs, the treatment it is at least a $100 million to $150 million market with targeted marketing and a committed salesforce.Shares of Xenoport were up 29 percent in the last one month and 47 percent in the past three months. For the past 52-weeks, they were trading between $3.46 and $8.07.



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