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XenoPort Inc. Reports Operating Results (10-Q)

November 09, 2010 | About:

XenoPort Inc. (NASDAQ:XNPT) filed Quarterly Report for the period ended 2010-09-30.

Xenoport Inc. has a market cap of $258.5 million; its shares were traded at around $8.46 with and P/S ratio of 7.5. XNPT is in the portfolios of Columbia Wanger of Columbia Wanger Asset Management.

Highlight of Business Operations:

In November 2010, we entered into an amended and restated development and commercialization agreement with GSK. GSK remains responsible for seeking approval of the NDA for RLS in the United States and for further development and regulatory matters with respect to Horizant for the potential treatment of PHN. Subject to the terms and conditions of the amended agreement, we have reacquired all rights to XP13512 outside of the United States previously granted to GSK (which excludes the Astellas territory) and we have the right to pursue development of Horizant for: (i) the potential treatment of DPN; (ii) the potential treatment of PHN, to the extent that a product label would reflect a superiority claim over a currently approved drug; and (iii) any additional indications in the United States. GSK remains responsible for commercialization of Horizant in the United States for all indications. The aggregate clinical and regulatory milestone payments that we are eligible to receive have been increased by $37.5 million, from up to $275.0 million to up to $312.5 million, of which $85.0 million has been received to date. We also remain eligible to receive up to $290.0 million upon the achievement of specified sales levels, with a reduction in the sales levels entitling us to specific payment amounts compared to our original agreement. Our participation in the co-promotion and joint profit and loss, or P&L, arrangements remain unchanged, except that we can delay the deployment of our sales force for up to three years following the potential approval of Horizant in the United States and our share of losses from the joint P&L will be forgiven up to a maximum of $10.0 million. Our payment of additional losses, if any, would be deferred and payable without interest over a period of time following the first quarter in which the joint P&L is profitable. In addition, we no longer have the right to detail Requip XL, GSKs product for Parkinsons disease. This right would have terminated upon the earlier of the launch of a generic form of Requip XL or July 1, 2011 under our original agreement. We would share any profits on sales of Horizant in the United States at tiered rates that escalate as a function of annual net sales levels, from a low of 20% to a maximum of 50%. For example (and for illustrative purposes only), if the annual net sales of Horizant reach $250.0 million, $500.0 million and $1.0 billion, we would be entitled to blended profit share rates of 25%, 34% and 42%, respectively. We may terminate our co-promotion right and participation in the profit share arrangement at any time upon notice to GSK with no penalty to us, resulting in a royalty-based compensation structure whereby we would receive a royalty on annual net sales in the United States at tiered rates that escalate as a function of net sales levels, from a low of 15% to a maximum of 30%. For example (and for illustrative purposes only), if the annual net sales of Horizant reach $250.0 million, $500.0 million and $1.0 billion, we would be entitled to blended royalty rates of 17%, 21% and 25%, respectively. GSK may terminate our co-promotion right for our not meeting a minimum sales requirement, for our uncured material breach in conducting co-promotional activities or upon our change of control in certain circumstances. GSK may terminate our collaboration agreement in its entirety for any reason and at any time. In such event, certain Horizant/XP13512 product rights would revert to us, and we would be entitled to specified transition assistance from GSK.

As a result of the implementation of our March 2010 restructuring plan that resulted in a reduction in force of 107 employees, or approximately 50% of our workforce, we recorded restructuring charges of $5.3 million in the three months ended March 31, 2010. The recorded restructuring charges consisted primarily of $3.9 million of leave of absence pay, severance and healthcare benefits, $0.9 million of non-cash stock-based compensation and $0.4 million of property and equipment write-offs. We do not expect to incur additional charges in relation to the March 2010 restructuring plan.

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