Xenoport goes out with a whimper

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After years of setbacks and disappointments Xenoport has finally been put out of its misery: the private drug maker Arbor Pharmaceuticals has agreed to pay $467m for the company. But while the takeover announcement highlighted the 60% premium that this represents to last week’s share price, few long-term investors will be sitting on a profit.

With its pipeline in tatters Xenoport’s main asset is the restless leg syndrome drug Horizant, which sold $40m last year. With an NPV of $297m, according to EvaluatePharma, the price tag looks pretty generous for a company without much left to excite investors.

Xenoport ended March with $120m in cash and $112m in debt. Earlier this month it said first-quarter sales of Horizant had more than doubled to $13.7m, and sellside analysts expect annual revenue to reach $200m by 2022. It seems that Arbor shares similar high hopes for the franchise.

The Atlanta, Georgia company is not afraid of taking on projects that have disappointed their former big pharma owners – it bought US rights to Takeda’s hypertension pill Edarbi in 2013, a product that never lived up to expectations and competes in the crowded and genericised ARB class. Horizant was previously partnered with GlaxoSmithKline, only to be cast aside a mere 12 months after receiving marketing approval in 2011.

The long struggle to get Horizant both approved and established on the market, on top of the company’s failure to deliver any viable follow-on products, kept Xenoport shares suppressed since 2010. The stock briefly rose as high as $13 the month before Glaxo walked away in November 2012, but has in reality struggled to trade much above the $7.03 Arbor offer price over the past six years.

As such many investors are likely to accept the cash offer as the best outcome after years of disappointment.

Good fit?

Horizant could well have found a good home in Arbor, which has a substantially bigger sales force than XenoPort - 500 to the current 135 promoting the drug.

And product sits pretty well in its new owner’s portfolio. Arbor has a couple of CNS-focused products on the market – Zenzedi and Evekeo, two amphetamine-based drugs sold for ADHD. According to its website it has a couple more in the pipeline.

It seems unlikely that Xenoport’s pipeline held much to tempt it. XP23829 remains technically active, but tolerability data released last year raised serious questions about the project's future (Tolerability data blunt Xenoport’s Tecfidera, September 16, 2015).

In March Dr. Reddy’s bought US rights to the asset for $47.5m up front in a deal worth up to $490m, with the Indian company saying it intended to pursue the psoriasis indication, and possibly MS as well. Presumably this represents another potential income stream for Arbor, if the deal completes as planned – as of the beginning of May the transaction was still awaiting clearance.

Like Horizant, XP23829 was developed using Xenoport’s prodrug platform – maybe Arbor hopes that it will find some further utility for the technology.

And, surprisingly, the private company has indicated that it will "use its reasonable best efforts to ... no longer be quoted on Nasdaq". Unless this strategy shifts the ultimate fate of Horizant will no longer be a concern of public investors.

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @AmyEPVantage on Twitter

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