XenoPort's CEO Presents at Credit Suisse 2012 Healthcare Conference (Transcript)

| About: XenoPort, Inc. (XNPT)

XenoPort, Inc. (NASDAQ:XNPT)

Credit Suisse 2012 Healthcare Conference

November 14, 2012 4:00 a.m. ET


Ronald Barrett - Chief Executive Officer


Ravi Mehrotra - Credit Suisse

Ravi Mehrotra - Credit Suisse

Good afternoon everybody. My name is Ravi Mehrotra, I am biotech analyst at Credit Suisse. We have Ron Barrett, CEO of XenoPort. We will be taking the breakout session in this room after Ron’s presentation. Over to you Ron.

Ronald Barrett

Thank you, Ravi. Thank you for the invitation to speak today. Before I get started I will remind you that I am going to be making forward-looking statements and that you should consult our SEC documents for information regarding to the risks and uncertainties of our business.

So it’s great pleasure for me to come here and talk about last week’s news in which XenoPort reacquired the rights to Horizant from our former partner GSK. We are going to be assuming all responsibility for the development, manufacturing and commercialization of Horizant after a transition period and so our start date will be May 1, 2013. I wanted to first go through some of the details of the transition period. So GSK will continue to commercialize Horizant during that transition period until April 30, 2013. We have already transferred the NDA for Horizant to XenoPort.

Our previous agreement had a profit share arrangement. We will not be responsible for any losses that occurred during the previous agreement and we will not receive any revenue or incur any losses during the transition period. As part of the approval process there were some post-marketing study that were required and GSK will be responsible for fully funding the cost of clinical trials initiated prior to the termination of the agreement and importantly that includes a rather large 500 patient in RLS patients. Examining lower doses.

GSK also manufactured a substantial amount of Gabapentin Enacarbil and we will be receiving any of the unused inventory of Gabapentin Enacarbil. It’s a large amount and we estimate that the stability of that material will allow us to use that material for several years and therefore we will reduce our cost of goods sold for the next several years. And as part of the deal we will be making payments of $1 million, annual payments for six years beginning in 2016. And then importantly as part of the agreement there was an equity purchased by GSK. It was structured in two tranches. We announced yesterday in 8-K that we have exercised the put and we now have purchased or GSK has purchased the full $40 million of common stock.

And we are very happy that we are able to reach this resolution with GSK. The agreement ends our ongoing litigation and provides us with the ability to first and foremost, continue to make Horizant available to patients moving forward but also gives us a great opportunity to be successful with the product.

Now just a few words about how Horizant has done to date. So as you know Horizant was launched in July of 2011 for the treatment of moderate to severe primary restless legs syndrome which I will refer to as RLS, and in July of 2012 for the management of postherpetic neuralgia in adults which I will refer to as PHN. In October of 2012 there were approximately 5000 total prescriptions of Horizant. 60% of Horizant prescriptions are being generated by specialists, primarily neurologists. The use of prescriptions of Horizant are highly concentrated with about 80% of Horizant prescriptions being generated by about 2200 physicians. And about 70% of current prescriptions are through commercial plans.

The managed care access currently for Horizant in terms of commercial plans, about 65% of all insured lives are in unrestricted tier two or tier three position with 90% of that being tier two. And in terms of Medicare Part D coverage, a small fraction less than 10% is in an unrestricted position. I would just point out that there has been very limited contracting for the product to date since it was launched in July of 2011.

Now how do we see the opportunity going forward. This is not a trivial market. There are about 5 million adults in the U.S. who suffer from moderate to severe primary RLS. About 60% of those sufferers are aware of their condition but have not received a prescription to date. There are about 6 million annual RLS prescriptions in the U.S. with Dopamine agonists having by far the greatest share, 80%-85% of prescriptions. One that has happened in the last several months that we are very excited about is the fact that the expert community in the field has really undergone change of view with regard to how RLS should be treated.

Up until recently, the first line therapy was recommended by these expert groups to be Dopamine agonists. But the international restless legs study group recently recommended that α2δ ligands should be considered as first line therapy for patients with severe sleep disturbance or insomnia, RLS or co-morbid pain, generalized anxiety disorder, a history or impulse control disorder. So this is really a sea change in how the experts in the field view the first line treatment. Then not only has this come about because of the studies that we conducted with gabapentin enacarbil to show a successful but an increasing concern about the use of dopamine agonists for long term therapy for RLS treatment.

Recently the American Academy of Sleep Medicine identified gabapentin enacarbil as the only α2δ compound with high level of evidence of efficacy. And as you are probably aware, Horizant is the only FDA approved non-dopaminergic treatment for RLS.

So what are we thinking about when we take over commercialization in May of next year. We are going to attack this in a focused and measured way. We plan to use a contract sales organization for building a dedicated specialty sales team. We are going to target neurologists, sleep specialists, pain specialists and potentially supplement that with high prescribing primary care physicians who are prescribers of RLS drug.

We are going to be thoughtful in the way that we define territories. We obviously want to target those territories where we think we can be successful. So we are going to be looking at the RLS prescriptions, current Horizant prescriptions, potential prescribers for PHN and importantly where managed care access would justify investment in those particular territories. We will be working to determine the optimal mix of promotional tools. They get us the best return on investment and hopefully we will be able to establish a scalable template for future promotion.

In particular, as we think about expansion of the sale effort, one of the considerations that we have is we have -- I am going to talk about in a minute, the Phase 3 results for arbaclofen placarbil for spasticity and multiple sclerosis patients. We think that there would be a good overlap of physicians who would prescribe both for RLS, PHN and AP. We have already had some indications of interest from people who have capacity within their primary care sales force. We are not going to rush to enter into such a relationship but that’s a way that we may be able to expand the promotion of the drug in an efficient manner.

And importantly, I mentioned earlier, there has been very little attempts to improve a formulary access and we would hope that our efforts over the near term will be able to increase those areas for which the managed care access is good. Now I just want to remind you that beyond Horizant in the U.S. we also have a collaboration with Astellas for gabapentin enacarbil. Regnite, the trade name in Japan, is approved for RLS in adults. And Astellas launched their commercial efforts in July of 2012. The market opportunity in Japan is less developed than in the U.S. but Astellas estimates there are about 2 million primary RLS patients in Japan and they are promoting Regnite currently with a large sales force of 1200 reps, primarily calling on sleep specialists and neurologists.

We receive a high-teen royalty on net sales. Those royalty is -- we will report the royalty in arrears so it was partial quarter in the third quarter. Astellas did not disclose their gross sales which they will going forward and we will be reporting our royalty in arrears.

Now I want to turn to arbaclofen placarbil for spasticity. What is spasticity? This is a condition in which nerve damage results in an abnormal increase in muscle tone, resulting in muscle spasms, muscle contractions, exaggerated reflexes, and makes difficult movement and daily function. About 5 million patients in the U.S. with spasticity. And spasticity can be caused by a number of different insults to the CNS including multiple sclerosis, spinal cord injury, stroke, traumatic brain injury and cerebral palsy.

The primary agents that are used to treat spasticity first line are oral agents, baclofen and tizanidine, both of which are generic. This shows the scrip level for those two products. Over the last year or so it’s growing with a 12% to 16% growth rate. I want to just point out that this is prescriptions for all usage. Baclofen, about 60% of prescriptions are for the treatment for spasticity. For tizanidine it’s about 20%. So it’s a substantial market and a reasonable market share at attractive branded pricing we think could be a very meaningful financial asset for XenoPort going forward.

Baclofen is by far the most commonly used spasticity agent for MS patients in the U.S. This is a study, a survey conducted sometime ago but the trends that we are seeing more recently are similar. And we have looked at a number of different methodologies for getting at the failure for baclofen and tizanidine in the treatment for spasticity. This is just one of the studies but they have all be fairly consistent. About 40% to 45% of patients will fail baclofen or tizanidine as first line agents.

And then the question becomes what do those patients do? They fail because of side effects and the ability to achieve the level of efficacy that is desired because of the side effects. And when patients fail, physicians are faced with a fairly daunting problem. They can add on other oral agents, none of which are approved for the treatment of spasticity, like benzodiazepines and α2δ compounds. But those are not particularly effective and if anything, only add to the side effects that are seen with baclofen and tizanidine.

Or they can go to more invasive procedures like, if the spasticity is localized in particular muscles, Botox injections. Intrathecal baclofen for more severe patients, or even surgeries to release spasticity by essentially cutting nerves that enervate those muscle groups. And so we think there is a very niche for a product like arbaclofen placarbil which we believe will be better tolerated and allow physicians to titrate to the desired level of efficacy and to do that with a reduced dosing frequency. And in particular, AP with its long duration of action, we think will do something that none of the other short acting agents will do, which is to relieve symptoms of spasticity that occur throughout the night.

Now this is why do we believe that. This is Phase 2 study that we did with AP in spinal cord injury patients with spasticity. It was a crossover study, study in three different doses AP. There was a very nice dose response. You can see in the slide. Statistically significant effects at the two highest doses. And importantly when we measure using what's called the Ashworth Score, we showed an effect in the morning prior to morning to dosing of AP, and AP was dosed twice a day in this study. And also at six hours post dose. So the morning efficacy is particular interest because we know that the short acting tizanidine and baclofen will not be able to do this. And in fact the time course of efficacy of tizanidine is in the product label showing that its efficacy only lasts for four to six hours.

Equally important in this study was the fact that we saw a very low incidence of somnolence and dizziness. 3% somnolence, 5% dizziness. This is in stark contrast to the product labels for baclofen which has somnolence and sedation rates up to 63%. And for tizanidine, I believe it’s in the 40% incident rate. So we think this product profile is going to be very attractive assuming we are successful in the development and approval of the product.

So we have had a number of discussions with the FDA on this program and we have an agreement with the FDA that assuming success of our Phase 3 trial, which I will talk about in a minute, we will submit this as a 505(b)(2) NDA. This is really unprecedented as far as I am aware for a pro-drug of a single isomer. And AP is the R-isomer a pro-drug of the R-isomer. To be accepted under a 505(b)(2) pathway, where we are referencing the FDA’s previous finding at the safety and efficacy of racemic baclofen. So we have completed virtually all of the studies required to file the NDA, including a full preclinical safety assessment, thorough QTc studies, renal impairment studies, food effect studies. Additional PK studies to show that our approved dose of AP, we are not exceeding the exposures of the highest approved dose of baclofen.

And the only thing that remains is the efficacy study and extension safety study, which are ongoing. This is the design of the Phase 3 study in MS patients. It’s a parallel design study, placebo controlled. We have a special protocol assessment for this trial. We expect the results of this trial in Q2. We are down to last few patients enrolling in the study. That should be done in the next week or so. And we are very much looking forward to the results of this study.

Patients in this study rollover into an extension study in which they, in an open label fashion, take AP for six months. We did reach an agreement with the FDA a few months ago to allow patients to directly enter into the safety study rather than having to go through the Phase 3 study. And we did that to assure ourselves that we need meet the safety requirements of the FDA as asked, which is they want a hundred patients who have experienced nine months of AP treatment and 150 subjects who have experienced six months of treatment. And we think we are on course to meet those safety objectives.

So let me just finish by talking about 829, which has potential for the treatment of psoriasis and relapsing-remitting MS. So 829 is a pro-drug of monomethyl fumarate. There is couple of other products and product candidates that also contain pro-drugs of MMF. Mostly notably BG-12, which is a formulation of dimethyl fumarate, which has been developed by Biogen for the treatment relapsing-remitting MS. And then there is a product in Germany that’s called Fumaderm that contains dimethyl fumarate and is the leading widely used agent for the treatment of psoriasis in Germany, it’s not approved anywhere else in the world.

Just to mention a little bit of chemistry. You see that dimethyl fumarate is about the simplest chemical structure you can imagine for a drug. Six carbons and four oxygens. But this fumarate molecule is a -- dimethyl fumarate is a diester. One of the methyl groups is cleaved and its believed that MMF is the active metabolite in the body which is involved in activation of processes like the nerve 2 pathway.

Dimethyl fumarate has certain deficiencies which I will talk about in a minute, what we did was to take one of the methyl groups and replace it with an alternative chemical structure shown here with R group. And the key to this was to select in R group that would be metabolized to create monomethyl fumarate and not to have any other pathway for metabolism. And that’s why 829 is unique chemical structure. We have a composition of matter patent for that molecule which expires in 2029 and obviously we would expect some patent term extension associated with development of the molecule.

So why do we think there is room for improvement for Fumaderm and BG-12. This is just some of the data from the Phase 3 trials with BG-12. And you can see the primary, the highest incidence of side effects relate to flushing which occurs at incidence rates in this study, at least into the high 30%. And a series of GI side effects, nausea/vomiting, diarrhea, upper abdominal pain and abdominal pain, which have an incidence in the teens, in some cases into the high teens.

So why do we think this occurs. Well, before I get into that I just want to say that one of other issue with Dimethyl fumarate, both in the published Fumaderm data as well as some of the published BG-12 data, is there appears to be a high inter-patient variability in MMF exposure. And this is just one study published by Biogen showing the MMF levels with three times a day dosing of BG-12 and you can see that the standard deviations here are very large. So it begs the question, if you had a more reproducible exposure to MMF, could you improve on BG-12.

So in preclinical studies, 829 compared to the DMF. 829 has higher solubility. We think that that can result in a couple of things. One, we can formulate it so we can control the exposure through formulation technology, whereas DMF is more difficult to do that. The other thing is that the dwell time for the 829 in the lumen of the intestine once it’s released from the formation. Because of its higher solubility it’s going to be able to permeate the intestinal barrier quicker than DMF.

In artificial cell systems, CaCo2 cell, where we have similar high permeability, one of the things about DMF that’s well know now is that it’s a contact sensitizer. So if it gets on skin, you get allergic skin reactions. In an animal model in mice, 829 does not have that same propensity to cause contact sensitization. In both acute as well 28 day tox studies and (inaudible) case GLP tox studies, we have shown less gastric irritation after oral dosing in both rats and monkeys for 829 compared to DMF.

And one of very interesting experiment we did, we radio labeled DMF and radio labeled 829. In the case of DMF we get 24 hours after dosing, residual radioactivity in the mucosa of the stomach whereas that does not occur with 829, suggesting that DMF which is known to be a chemically reactive compound, is being trapped in the lumen forming covalent [attics] with proteins on the cells that bind the GI track. And importantly, while I think all of the evidence suggests that MMF is the active metabolite, in fact you can't measure any DMF in the systemic circulation after dosing the Fumaderm or BG-12.

We were able to show in a EAE model of MS as well as in Imiquimod model of psoriasis that 829 is at least as good and some hints that it may actually be better than Dimethyl fumarate, suggesting that the common metabolite, MMF, is responsible for the activity.

So we announced early in October the results of our first in human study. The object of this study was to confirm the metabolism of 829 in healthy subjects and to look at the pharmacokinetics of MMF after single doses of four different formulations of 829 under fed and fasted conditions. One of those formulations was designed to mimic Fumaderm and BG-12 in producing a spike of MMF after dosing. The other three were intended to be extended release formulations that could potentially be explored for once a day dosing. We also hope to get some information with regard to the impact of food on the variability of pharmacokinetics.

So just to summarize high level, and we have submitted an abstract for AAN and we hope to present the results of the study at AAN next year. We confirm the expected metabolism of 829. We got rapid cleavage of the molecule conversion to MMF. There was no measurable intact 829 or desmethyl 829 in blood. Desmethyl being the removal of the methyl group rather than the R group in the previous diagram that I showed.

And we do have a unique molecule here. The promoiety, the R group that’s cleaved off, we showed that that was cleared rapidly with about half life of three hours. As expected, formulation 1 produced a sharp peak in MMF blood levels similar to the published data for Fumaderm and BG-12. We think this would allow it to be dosed two or three times a day. One of the observation was like Fumaderm and BG-12, food appeared to increase the inter-subject variability for that formulation. Formulation 2 produced a MMF total exposure, AUC, similar to formulation 1 but with a lower (inaudible) and a longer duration of exposure. And importantly, food had minimal impact on the PK profile. So this is potentially something that we could explore for once a day treatment. And 829 was well tolerated in the study.

All 12 subjects in each cohort completed both dosing periods. All adverse events were mild in intensity and the only adverse event that was reported in more than one subject and more frequently for 829 than placebo, was flushing and feeling hot. So in the bottom half of this slide you can see that formulation 1, 7 of the 12, in the fasted state for formulation 1, had flushing. 5 on fed, three on fed reported feeling hot. And the incidence of flushing and feeling hot for the other extended release formulations were much lower.

So a good start. And so one of the critical questions going forward considering these two formulations, when one thinks about flushing for instance, this data would suggest that the high [cemax] and rapid rise associated with formulation 1, Fumaderm and BG-12, maybe a trigger for flushing. And so avoiding that may reduce flushing. But I think a more interesting question is what are the critical factors for efficacy? Does one have to achieve a maximal concentration, a [cemax] driven efficacy event. Does it require two or three pluses a day or it could a flatter profile suffice if you have the same AUC and maintain levels above a threshold for a longer period of time, would that result in improvement in that efficacy.

I don’t think anyone knows the answers to these questions but we certainly feel we have the tools to probe both in psoriasis and in multiple sclerosis, what the potential advantages are by being able to manipulate the PK profile in MMF because we have a well tolerated -- a pro-drug that does not have the same level of flushing and/or GI side effects.

So what's next? We have a multiple ascending dose study and we are going to be taking both formulation 1 and formulation 2. The first one doses twice a day, the second one doses once a day. And the objective of that study is to understand the safety and tolerability as we escalate the dose. And we do intend to escalate the doses that would result in exposure higher than the approved dose of the -- or the BID dose of BG-12, and we will established the steady-state pharmacokinetics. We have now established, we have [IRB] approval, we have the sideline of them. We will start this study in December of this year.

The second study which will start in the second half of next year -- sorry, in the first half of next year, is a metabolism and disposition study for radio labeled 829. This is a study we want to be able to say that we fully understand the metabolites of 829 and their disposition. And we are going to be doing that with 2 different forms of 829. One labeled fumarate, one labeled in the promoiety. So that when we go into the FDA, we can say we fully characterize the human metabolites, all of the metabolites are covered by our animal tox studies and we don’t have to get into any wrestling match down the line with regard to tox coverage.

Now what indication are we going to go to? So multiple sclerosis, psoriasis are obvious. Both Fumaderm and BG-12 have shown efficacy in both of those indications. Parkinson’s disease is something we are intrigued by. We have a collaboration with the Michael J. Fox Foundation in which we are studying 829 in an animal model with Parkinson’s disease progression. So for the next year we don’t have to decide on the indication. We have a series of Phase 1 studies that’s going to be generating information and hopefully value as we go forward. But obviously an important strategic consideration is what indication we consider.

So just to wrap up then. We ended the third quarter with $113 million approximately. We have added since then the $40 million associated with the equity purchase by GSK. Our cash burn guidance for 2012 was $45 million to $55 million, we think we are going to come in in that range. And we have no debt and prior to the sale of equity to GSK we had 42.9 million shares. Obviously we have added shares in the stock purchased by GSK.

So with that thank you very much for your attendance here. I think we are going to move to the breakout session. So this will end the webcast. Thank you.

Question-and-Answer Session

[Q&A session not available for this event]

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!