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XenoPort Inc. (NASDAQ:XNPT)

Q4 2008 Earnings Call Transcript

February 12, 2009; 5:00 pm ET

Executives

Ron Barrett - Chief Executive Officer

Bill Harris - Senior Vice President of Finance and Chief Financial Officer

Bill Rieflin - President

Jackie Cossmon - Investor Relations

Analysts

Michael Aberman - Credit Suisse

David Amsellem - Piper Jaffray

Michael Yee - RBC Capital Markets

Gene Mack - Lazard Capital Markets

Rachel McMinn - Cowen

Davis Bu - Goldman Sachs

Steve Harr - Morgan Stanley

Yale Jen - Maxim Group

Juan Sanchez - Ladenburg

Boris Peaker - Rodman & Renshaw

Operator

Good afternoon. My name is Kayla and I’ll be your conference operator today. At this time I would like to welcome everyone to the XenoPort fourth quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Ms. Jackie Cossmon. Ma’am, you may begin your conference.

Jackie Cossmon

Thank you, Kayla. Good afternoon and thank you for joining us on the call. Here with me today are Ron Barrett, our Chief Executive Officer; Bill Rieflin, our President; and Bill Harris, our Senior Vice President of Finance and Chief Financial Officer.

Before we begin our discussion of today’s news, I would like to note that the information to be discussed on this conference call and webcast, including answers to questions asked during this call will include forward-looking statements that involve risks and uncertainties, including statements related to our current and future clinical development programs and clinical trials and the timing thereof, our partners, clinical development plans, the release of additional clinical trial data, the regulatory process and the timing thereof, milestone payments and the timing thereof and the commercial potential for our product candidates. XenoPort can give no assurance with respect to these statements and we assume no obligation to update them.

For a detailed information about the risks and uncertainties that could cause actual results to differ materially from those implied by or anticipated in these forward-looking statements, please refer to the risk factors section of our most recent SEC filings, including our discussion of the inherent risks of clinical trials. This webcast is a copyright of XenoPort.

At this time I would like to turn the presentation over to Ron.

Ron Barrett

Thank you, Jackie. Thank you all for joining us on today’s call. I will be speaking today about our clinical development programs and then Bill Harris will spend a few moments discussing our financial results for the fourth quarter and other financial matters. We will then take your questions.

Our press release earlier today outlined progress in several areas of our business, but I’d like to take a few moments to highlight a couple of particularly significant events, including the 279 results released today. First, we are very pleased that GSK has re-filed the NDA for Solzira for the treatment of moderate to severe primarily RLS. We expect the initial action date for the Solzira NDA to be near the end of this year.

In the fourth quarter of 2008, GSK initiated another clinical trial of Solzira, a Phase 3B polysonography trial in RLS patients, the purpose of which is to provide additional evidence of the sleep benefits of Solzira. This is the fifth trial of Solzira that GSK has initiated in the last year, all of which are being funded entirely by GSK. We are pleased by the substantial resources that GSK is putting behind Solzira’s development and we look forward to the results from the three neuropathic pain trials later this year.

Astellas, our partner in Japan and other Asian countries is also making progress in developing 512. Astellas announced that it completed enrollment in a Phase 2 trial of 512 in RLS patients in Japan and we anticipate the results of this trial will be available later this year. Another important event for us in the fourth quarter was the completion of our Phase 2 multidose GERD clinical trial of 986.

We have now examined in depth the data from this study and we remain encouraged by the tolerability and efficacy of 986 in the PPI experienced population. We intend to report the more detailed results from this clinical trial and medical conference later this year.

We’ve also been moving forward on the design of the next Phase 2 clinical trial of 986, which will evaluate 986 or placebo taken along with a PPI in GERD patients who our incomplete responders to PPI therapy. We intend to initiate this trial in the second half of this year after we have completed our concentration with experts and with the FDA.

We are pleased to report today that we have completed enrollment of the Phase 2 trial of 986 in spinal cord injury patients experience spasticity. We expect to announce the top-line results of this trail by midyear. In December, we initiated a phase 2 safety and pharmacokinetics trials 986 for the treatment of acute back spasms of neuromuscular origin and we expect the results of this trial by the end of the year. The results of these trials will be an important factor determining the development path for 986 beyond GERD.

Finally we are pleased to announce today encouraging results from a Phase 1 clinical trial of two new formulations of 279. In this single-dose trial that compared 279 to Sinemet, both formulation of 279 produced a more sustained exposure of L-Dopa and we’re well tolerated.

The formulations demonstrated improved by availability compared to original prototype formulation of 279 and had bioavailability equivalent to that of Sinemet. The new formulations also have advantages over the prototype formulation in terms of manufacturability, shelf life and pill size. The observed single-dose PK properties of the new formulations are anticipated to translate into reduced peak to tough ratio of L-Dopa compared to Sinemet when dosed multiple times day.

Importantly we believe that the new formulations could provide rapid onset of action following the first morning dose and maintenance of the therapeutic L-DOPA exposure throughout the day. To confirm this, we are currently conducting a multidose clinical trial with one of these formulations in healthy subjects and intend to begin a clinical trial in Parkinson disease patients later this year.

Before I turn the call over to Bill, I’d like to talk briefly about our expected milestones for 2009. It should be a year that is rich in data from clinical trials and importantly, include a possible response from the FDA on the Solzira NDA for RLS. The trial results include additional data on the value of Solzira for the relief of neuropathic pain and on the potential of 986 of the treatment of spasticity and relief of acute back spasms.

We also look forward today to demonstrating 279s ability to improve the PK profile available Parkinson’s patients. 2009 will be an important year for our company and we look forward to reporting our progress.

With that I’ll turn the call over to Bill.

Bill Harris

Thanks, Ron and thanks to all of you for joining us today on the call. I’ll spend a few moments reviewing the financial results for the fourth quarter and we will then take your questions. The decrease in revenues for the quarter compared to the same period last year was primarily due to a decrease in the revenue recognized pursuant to our GSK agreement.

Through the end of 2008 we have recognized approximately $134 million of the $140 million we have received from GSK, reflecting the fact that we have completed a substantial portion of the activities under the agreement namely, the completion of the Phase 3 RLS program for Solzira. At this point our role in the RLS program has shifted to supporting GSK during the NDA review process and we expect to recognize the remaining $6 million as we provide the support.

The $2.4 million increase in research and development expenses during the fourth quarter 2008 compared to the same period in 2007 was principally due to increased costs associated with our 986 GERD, spasms in acute back spasm development programs, increased preclinical development activities and increased personnel costs, resulting from increased headcount and increased non-cash stock based compensation, which were partially offset by decreased costs for the clinical development of Solzira.

General and administrative expenses in the fourth quarter of 2008 increased by $2.1 million compared to the same period in 2007. This increase is primarily due to increased personnel and related costs resulting from increased headcount and increased non-cash stock-based compensation.

Net loss for the fourth quarter of 2008 was $18.7 million, compared to a net income of $2.5 million for the same period in 2007, again primarily due to the decrease in collaboration revenue recognized during the quarter. Net loss per diluted share was $0.74 in the fourth quarter of 2008 versus net income per diluted share of $0.09 for the same period in the prior year.

With the receipt of the second $6 million payment from Xanodyne during the fourth quarter and the completion of our registered direct offering at the end of the year, our balance sheet remains strong with cash, cash equivalents and shore term investments of $152.8 million at December 31, 2008.

I’d like to close by reminding investors of the disclosure that we made in early January regarding cash used in 2009 and beyond. We stated that we are expecting net cash usage of between $55 million and $65 million in 2009. You may recall the previously announced provision in our agreement with GSK that has the effect of reducing the expenditure of cash in 2009, if we exercise our option to co-promote Solzira and participate in a profit share arrangement.

During the period after the co-promotion election is exercised and prior to the launch of Solzira, the cash payments to GSK representing our share of any loss would be deferred and would be repayable following the launch of Solzira. As a result, the foregoing cash per guidance for 2009 is not expected to change if we elect to exercise the co-promotion option under the GSK agreement.

Finally, we have indicated that with our cash and anticipated milestones, we expect our cash to last into the second quarter of 2011. Thus we believe that we are in a strong financial position to execute under the development plans that Ron outlined that will build further value for the company.

With that we will now open the calls for questions, operator.

Question and Answer-Session

Operator

(Operator Instructions) Your first question will come from the line of Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

Thank you for taking the question. Can you give us a little better color what we should be looking at in terms of PK in the multi-dose study for the L-Dopa product?

Ron Barrett

Yes, this study will be a crossover study in healthy subjects, in which Sinemet will be dosed multiple times a day and 279 will be dosed multiple times a day and what we’re looking for is a reduction in the peak trough ratio throughout the full day. We’re collecting PK for 24 hours.

Michael Aberman - Credit Suisse

Is there any reduction in the number of pills per day for your product or when you say multiple times enable, what’s the anticipation do you think, based on the single dose that you could have fewer pills per day?

Ron Barrett

Well, discussions we’ve had with experts, they’re more concerned about the flatness of the PK profile than necessarily the number of doses per day and so this study will examine three times a day Sinemet versus three times a day 279. With the single dose data that we have, we would predict a very flat profile for 279 and one which achieves what we believe to be therapeutic concentrations rapidly on the first dose of the day and extends those levels throughout the day in a flat manner.

One other thing that we’ve been discussing with experts is at the end of the day, how long you want to peak the L-Dopa exposure to be maintained and so this formulation would allow some flexibility there depending on how many times a day you dosed it. This particular experiment is going to be three times a day. Whether we end up with that eventually, I think it depends in late stage patients where you really want to have this flat profile earlier patients twice a day with this product. With the profile that we have, probably it’s going to be acceptable also.

Michael Aberman - Credit Suisse

Thanks.

Ron Barrett

You’re welcome.

Operator

And your next question will come from the line of David Amsellem with Piper Jaffray.

David Amsellem - Piper Jaffray

Thanks for taking my question. My first is a follow-up asked from the first question. Can you talk about you how you believe the tolerability of 279 differs from conventionally levodopa or carbidopa treatment?

Ron Barrett

Yes, the major issue with current L-Dopa therapy is the fluctuated levels that occur during the day and so when you fall below the necessary therapeutic level you have a return of symptoms or wearing off of the drug action. When you overshoot the necessary levels, you have dyskinesia.

So, the objective of 279 is to produce a flat profile that would maintain levels of L-Dopa within the therapeutic range and maintain efficacy without overshooting and getting dyskinesias and not allowing the blood levels to fall below the necessary levels and have wearing off.

This is pretty well established based on intravenous infusion studies with L-Dopa and infusion studies where L-Dopa is delivered directly into the upper GI track. So, the proof of concept is certainly out there. We think that getting the right PK profile is the key and that’s why we’re working on these formulations to achieve that.

David Amsellem - Piper Jaffray

Okay, that’s helpful, thank you. And then my next question is on Solzira, I’ve got a couple of questions here. First, can you talk about how many arms three are in the diabetic neuropathy study and secondly can you talk about what the doses are and what’s the dose for the (Inaudible).

Ron Barrett

Yes, in the diabetic neuropathy study it is a five-arm study and the doses of Solzira are 1200 milligrams a day, 2400 milligrams a day and 3600 milligrams a day, and that’s split BID. There’s a placebo arm and then there is a pregabalin arm and the dose there is the recommended dose of 300 milligrams a day.

David Amsellem - Piper Jaffray

All right and then can you also talk about how that study has statistically powered for you?

Ron Barrett

GSK has not disclosed the powering assumptions. It’s about 400 patients in size split between five arms that would give you enough patients based on historical data to see a statistically significant effect, but the specifics of the powering have not been disclosed by GSK.

David Amsellem - Piper Jaffray

Okay thanks. I’ll jump back I queue.

Ron Barrett

Thank you.

Operator

And your next question will come from the line of Michael Yee with RBC Capital Markets.

Michael Yee - RBC Capital Markets

Thanks. A couple of questions; on the neuropathic pain program, can you just give us a better idea in terms of timing of data. I guess they are enrolling that at different times and probably going to complete implement at time so. Should I assume that will get multiple releases throughout the year or do you suspect that they’re all at onetime point and just help us understand the timing?

Ron Barrett

Sure. I mean I can only go by what’s been disclosed by GSK. They did disclose that the enrollment in the PDN study had completed last year November’ish and so I think it’s safe to assume that one will likely report out sooner. They haven’t disclosed that the other studies have completed enrollment. I think that given the materiality of this we will disclose the results as they come in. Obviously that’s going to be subject to an agreement with GSK.

Michael Yee - RBC Capital Markets

Okay, and then on the cash burn, $55 million to $65 million, can you help me understand assumptions or that assumes an octane, but obviously doesn’t include a milestone upon approval. Is that safe to say?

Ron Barrett

No, in general we don’t go on the specifics. What I can say on the two points; first off, we have indicated based on the provision that we disclosed in the agreement, should we elect the option, we do not expect that to change the guidance and then to your second point, I think you’re asking is there an approval milestone assumed.

First off, we’ve not disclosed composition of the remaining clinical and regulatory milestones under our agreements with GSK and Astellas. However, milestones of this type are not uncommon provisions. In terms of whether we would include such a milestone in the ‘09 guidance, I would note two things. At first, we’ve historically had a conservative bias from providing our guidance. Secondly, if the Solzira NDA is accepted our PDUFA date would likely be in November. So, I will leave it up to you to decide how to handle that in your model.

Michael Yee - RBC Capital Markets

Okay, so if it doesn’t include the option or it won’t change the guidance, how should I think about timing of when it could happen?

Ron Barrett

So the timing again hasn’t been disclosed, but I think given the available information, it’s got to be before the Solzira NDA, since there was a right to detail reequip and advance and obviously it didn’t occur when we filed the NDA, so I think it’s safe to assume that it’s coming up soon and that’s why we’ve given some clarity to what the implications are financially to if we make that election this year.

Michael Yee - RBC Capital Markets

Thanks.

Ron Barrett

You’re welcome.

Operator

And your next question will come from the line of Gene Mack with Lazard Capital Markets.

Gene Mack - Lazard Capital Markets

I apologize, if you’re repeating yourself here, then I’ll just move to my second question, but can you maybe elaborate little bit on the design the Phase II trial for neuromuscular spasms?

Ron Barrett

Sure. It is a study that is being conducted in patients who have painful back spasms, I mean it’d a relatively short study; it’s 14 days of treatment. The efficacy assessment, which is a numerical pain scale, is done both at baseline as well as at the fourth day of treatment and the end point; one of the efficacy assessments is the change from baseline in this numerical pain score.

I want to be sure to clarify that this is our first study in this patient population, because efficacy has to occur quickly, because the normal course of acute back pain is that it resolves in most patients within seven to ten days. So you have to achieve efficacy fast. We don’t have the opportunity to do a slow titration. So this will be a study in which we examine the drug with no titration.

Based on all the data we have, we believe that the doses we’re studying here will be well tolerated and the primary objective of the study is to really understand the tolerability in this patient population with this dosing regimen, but as I said in the secondary endpoint, we are doing an efficacy assessment.

Gene Mack - Lazard Capital Markets

Okay and can you give us an idea what the doses are going to be?

Ron Barrett

We have not disclosed that, but they’re certainly doses that we’ve studied in Phase I as well as doses that were included in the GERD study. The dosing is going to be done twice a day in the study.

Gene Mack - Lazard Capital Markets

Okay and number of patients?

Ron Barrett

The 160 total patients is the target.

Gene Mack - Lazard Capital Markets

Great, thanks and again I don’t know really whether you’ve reviewed this as well, but can you give us an idea if there’s been any conversation with Astellas on the diabetic neuropathy trial if they were in, if there is been any additional analysis data there, any additional insight that they’ve provided yet?

Ron Barrett

None that, we’re disclosing at this time. We are obviously in conversations with them all the time. There were additional patients in that study that were not included in that interim analysis and some of them had started at the time of that termination, and so they had to finish the study and then the data needed to be analyzed. So there’s been no update with regard to the status of that study.

Gene Mack - Lazard Capital Markets

Great and then just finally, data presentations this year, anything that you are comfortable talking about now or?

Ron Barrett

Well, we have a number of abstracts submitted. I will say based on what we’ve heard back so far about accepted abstracts we will be presenting Solzira results at the AAN meeting, as well as the APSS meeting. Beyond that, we haven’t heard back from abstracts that we’ve submitted. We hope to present the 986 GERD data at one of the major GI conferences this year.

Gene Mack - Lazard Capital Markets

Great, thanks. That’s it from me, thanks.

Ron Barrett

Thank you.

Operator

And your next question will come from the line of Rachel McMinn with Cowen.

Rachel McMinn - Cowen

A couple questions; on the co-promote question, so if my read of your non-body language is that everything is pointing that you would exercise an option. Is there something that we can look at externally that would change your mind in terms of any additional data that we’re not aware of, like baclofen date that you are looking at something that could alter the course of why strategically you wouldn’t want to do a co-promote?

Ron Barrett

I will let Bill Rieflin speak to the kind of the rational and the issues that are involved in our election.

Bill Rieflin

So, I think Rachel if you put your finger on one of the -- I’d group in this three general rubrics under which we are analyzing this; risks, cash flow and strategy. You hit on the strategy bucket and that is the more success we have with other parts of our pipeline, the greater the utility is for having a sales force and so therefore the co-promote profit share election is more valuable to us, but there are others; cash flow analysis is pretty straightforward as between the royalty and the profit share; the risks tend to cut in favor of the royalty, not surprisingly because you’ve got execution risk, you got organizational risk etc.

In response to the general thrust of your question though, one of the things that we’ve been highlighting is the provision of the agreement that’s publicly available which gives us the ability to elect the co-promote profit share and at some point in the future we decide for whatever reason that we want to go back to the royalty, we have that right. By contrast, if we don’t exercise the option during the one-time period where it’s available to us, we’ll never have the ability to go from a net sales royalty to the profit share.

So you are correct, that kind of the strategic dimension is one of the things that we’re focused on in this and the progress of other pipeline candidates is a big part of that and so we’re looking at all this holistically. We haven’t made the decision, but it’s something as Ron indicated that’s coming up.

Ron Barrett

I would also add that as the data in neuropathic pain and migrant prophylaxis comes out this gives us greater confidence of the advantage of the profit share economically over the royalty rate, because as the sales grow, the profit share becomes more favorable.

Rachel McMinn - Cowen

Okay and in terms of the backdrop of the economic environment, any reason to think that would influence your decision?

Bill Rieflin

I think, Rachel that was one of the reasons why we worked with GSK to get the disclosure out that Bill reminded you of earlier. Given in that economic environment and obviously it’s difficult to raise cash, but as Bill indicates, the impact of a decision to go down the co-promote profit share route is not something that we feel until after the launch, when we’re required to repay our share of the pre-launch expenses.

Rachel McMinn - Cowen

Right, that’s very helpful. Then I guess two other questions; can you talk about what the half-life is for 279 under the new formulation?

Ron Barrett

Yes, I don’t have that figure in front of me and with these types of sustained released products; the half life is really being driven by the release of the Prodrug from the formulation. So the terminal half-life is the same, because ultimately it’s L-Dopa that is being cleared, but I will say that when you look at the single dose PK profile that the L-Dopa exposure is extended beyond that, that you see with Sinemet itself and when you model out, this is in a repeat dose situation that the peak/trough ratio was substantially reduced.

Now, this is single dose data and I think we felt it was prudent to confirm that in a multi-dose study before moving ahead with this particular formulation and we hope to see the healthy subject data relatively soon in that and then go into Parkinson’s patients.

There is some at least theoretical and practical concern about translating healthy subject data who tend to be young people to Parkinson’s patients with advanced disease; and so after we see the healthy subject data, we’re going to want to confirm that PK profile in the Parkinson’s patients. The good news is that these are relatively quick studies and we hope to be able to get that data certainly this year.

Rachel McMinn – Cowen

But in terms of kind of what you would need to feel comfortable before, I think you had a peak-to-trough ratio of around four, do you think you can do better than where you were? Is that important for you to do better than four-to-one?

Ron Barrett

I don’t recall us giving that figure of four-to-one. That was the old formulation given?

Rachel McMinn – Cowen

Yes.

Ron Barrett

Yes, I think we can at least achieve that and perhaps do better.

Rachel McMinn – Cowen

Okay and then, last question is on the neurology publication for PIVOT I. There is a comment in here about the number of somnolence events and kind of when they occur, but another comment in the paper talking about duration of somnolence and duration of dizziness. Can you just explain what that actually means?

Ron Barrett

Yes, I don’t remember the specific comment in the paper, but what the data is, is that somnolence when it occurs, occurs early in treatment, typically in the first week and in general it resolves within let’s say the next seven to 10 days. There are very few patients who continue to experience somnolence beyond the first week or so of the study.

When we actually measure somnolence using the mass sub-score looking at somnolence as well as the upward sleepiness score, later in treatments at two weeks, at four weeks, at 12 weeks, we actually see improvements in daytime somnolence because, the patients are sleeping better and using those two instruments we’re able to show improvement in somnolence.

Rachel McMinn – Cowen

So it’s not actually driven by a drop-out effect where patients who are experiencing the somnolence are dropping out?

Ron Barrett

No, no, that the drop-out rate was considerably lower than the incidence rate.

Rachel McMinn – Cowen

Right. Okay, thanks very much. That’s great.

Ron Barrett

You’re welcome.

Operator

And your next question will be from the line of Davis Bu with Goldman Sachs.

Davis Bu – Goldman Sachs

Hi, thanks for taking the questions. A couple of questions, following up on some other previous ones; the first is, just to remind me if you exercise the co-promote and revert to a royalty stream, is that basically the same royalty arrangement that you’d have, if you initially entered the royalty, or is there some drop down in the royalty rates?

Ron Barrett

No, it’s the same that we would be entitled to have initial. There are no other pancolitis associate with that reversion back to the royalty.

Davis Bu – Goldman Sachs

Thank you and I don’t know if you can comment on this, but the deferral of the cash payments if you exercise the co-promote, how long can that be deferred out to, like when would that need to be sort of made up?

Ron Barrett

So it’s a good question obviously Davis. When we spoke with GSK about providing this incremental information to investors, we have some fairly specific language that we need to stick to, so that our provision has not been made clear other than to say it’s over a period of time. It’s not a balloon repayment provision.

Davis Bu – Goldman Sachs

Okay, great and then the last is, have there been any updates on the Migraine program?

Ron Barrett

No, there have not. It’s ongoing; there has been no changes in terms of the status.

Davis Bu – Goldman Sachs

Okay, thanks.

Operator

And your next question will come from the line of Steve Harr with Morgan Stanley.

Steve Harr - Morgan Stanley

First of all, can you say that the cash on hand is adequate to get you through the second quarter of 2011, assuming in all forward milestones? Can you give us an idea of how long your cash lasts if you have not received FDA approval and the milestone that comes along with it?

Ron Barrett

Yes, that’s a little more challenging. It depends on a number of assumptions at the time. So, I don’t think there would be a material change to that guidance per say. We may make some adjustments to the operating plan to extend it. As we’ve indicated in the past we do have operating flexibility in the plan, but I wouldn’t foresee that issue driving us out of cash materially sooner than what we’ve guided to you right now.

Bill Rieflin

Obviously, there wouldn’t be the revenue coming in, but also there would probably be less expenses than we’ve modeled, and…

Bill Harris

And your question presupposes the existence of a milestone that we can’t confirm. So there is just a lot of hypothetical aspects to it.

Steve Harr - Morgan Stanley

Yes, although I think its pretty right, I’ll give some payment for given drug approved.

Bill Harris

We agree with that characterization.

Bill Rieflin

The other thing I would add Steve, is that all of the other expenses associated with development for other indications are borne by them, so there would be no change to that.

Steve Harr - Morgan Stanley

If you exercise a profit split, how about R&D assuming no approval?

Ron Barrett

If we exercise a profit split…

Steve Harr - Morgan Stanley

Where does R&D fall? Does it fall under your profit split?

Ron Barrett

No. So I think that goes back to GSK is paying for all ongoing development of Solzira.

Bill Rieflin

And any future development and new indications, irrespective of royalty or profit share.

Ron Barrett

And under the profit share, those expenses would not hit the joint P&L.

Steve Harr - Morgan Stanley

Then on 279, you compared it to Sinemet, how about Stalevo or is the PK profile comparable, better, not as good as?

Ron Barrett

Stalevo is interesting because it does extend the exposure by an hour or so, but it kind of increases the levels across the full spectrum of the curve and our curve is different from Sinemet. It doesn’t have as sharp a peak, and to Stalevo actually increases the levels at the peak as well as at the longer timeframes. I believe that our goal is to achieve better than Stalevo in a repeat dose format and that will be something that we’ll have to look at as we go forward.

Steve Harr - Morgan Stanley

All right. Thank you.

Ron Barrett

You’re welcome.

Operator

And your next question will come from the line of Yale Jen with Maxim Group.

Yale Jen - Maxim Group

Thank you for taking my questions. I just want to continue to expand on the question just previously asked. In terms if you revert from the co-promotion back to the royalty; is there a time limit how long this things can make it to that decision?

Ron Barrett

No. We can make a decision to revert from an elected co-promote profit share to a royalty at anytime. So, it is not limited to a certain period of time. The converse is not true, so in other words, we have a onetime opportunity to go from the default position, which is royalty to the co-promote profit share and if we don’t exercise the option during that one time period we lose that right forever.

Yale Jen - Maxim Group

Right, and also let’s just assume that for the other indication, subsequently they all workout or some of them workout that you have a much larger sort of potential revenue from that. In the co-promotion sort of arrangement, was there any changes of differences in terms of the returns or that will be the just the same as currently or a less like syndrome set up.

Ron Barrett

Yes, the terms are the same without regard to the number of indications for which Solzira is ultimately approved and I think that your question points to a way that we think about this, which is truly in terms of an option.

As I was responding to Rachel earlier, one of the mentions we look at this is from a cash flow perspective and it is true that are royalty decision by XenoPort is better in the near term, because we’re not required to share the launch cost for this product, but it’s also fair to say that in the longer-term and in the scenario where Solzira is approved for multiple indications beyond restless leg syndrome, that as you might expect, the profit share is substantially more rewarding to our stockholders.

Yale Jen – Maxim Group

And finally, just in addition to the indication that has been currently in study, including migraines was there any other sort of possible indication that GSK has been contemplated potentially can use Solzira?

Ron Barrett

Absolutely. There’s a Plethora of other indications that have been analyzed and are part of a lifecycle management program. We haven’t disclosed any of that thinking. Obviously that’s GSK’s decision, but there are a number of indications where one might expect Solzira to be effective.

Yale Jen – Maxim Group

Okay great. Thanks a lot.

Ron Barrett

You’re welcome.

Operator

(Operator Instructions) Your next question will come from the line of Juan Sanchez with Ladenburg

Juan Sanchez - Ladenburg

Good afternoon guys. The first question is if you guys have set the pricing strategy for Solzira, is Glaxo already in that and the second question will be, do you have any estimate on the amount of money that could be deferred under the Glaxo co-promotion agreement assuming that the drug gets launched in the next year and the third question is on 986. What else is new? I mean what did you learn recently from further analysis of the previous data that makes you feel more comfortable now?

Bill Harris

All right. I don’t think you are going to be satisfied with the answers to the first two questions. With regard to pricing of course, there have been considerable discussions around pricing, obviously this is a decision of GSK’s and we’re involved in joint teams with them, where this is being discussed, but there’s been no disclosure of this.

On the amount of money that will be disclosed, again, we’re not commenting on that, we’re on our share. With 986, perhaps I can give you a little more satisfaction there. We’ve gone through now the secondary end points beyond just those that were part of the top line data and things like regurgitation, awakenings at night due to symptoms, sleep quality, a number of measures that we looked at in this study and the data is very consistent showing trends, several which are statistically significant in showing the benefit of 986 in the PPI experienced population.

So I think we have to remember this was a small Phase 2 study and that PPI experienced population was only a low 20 number of patients per arm and to be able to see at this consistent effect across multiple end points I think is reassuring and as I said, many of them reaching statistical significance. So we’re hoping that we’ll get accepted for presentation at a medical meeting coming up and be able to share this data.

Juan Sanchez - Ladenburg

Is that DDW or any other?

Ron Barrett

Well we’re not commenting specifically. We’ll just say that the DDW abstract submission was in the timeframe that we got the results and DDW has not indicated the acceptance of abstracts at this point.

Juan Sanchez – Ladenburg

Thank you very much Ron.

Ron Barrett

You’re welcome.

Operator

And your next question will come from the line of Boris Peaker with Rodman & Renshaw.

Boris Peaker - Rodman & Renshaw

Hi, thank you very much for taking my question. I just have a quick question on Solzira and RLS and specifically if you had any discussions with GSK about potentially conducting an active control study similar to the one that Pfizer’s running?

Ron Barrett

Well, we certainly have had discussions with GSK around a number of studies going forward that would provide additional evidence of efficacy and potentially comparison to other agents. Unfortunately, they have not allowed us to disclose and probably won’t disclose that for competitive reasons until those studies are started.

Boris Peaker - Rodman & Renshaw

Okay, thank you very much.

Ron Barrett

You’re welcome.

Operator

And your next question will come from the line of Lucy Lu with Citigroup.

Unidentified Participant

(Inaudible) signing in for Lucy Lu. I was wondering if you could perhaps comment on the recent issue with seasonality in the gabapentin class and what the current FDA and maybe even your view is on in the provability of the restless leg syndrome, how we may even expect labeling of this approval? Thank you.

Ron Barrett

Sure. I think it’s been very reassuring that the FDA has pretty much followed the recommendation of the ADcom with regard to class labeling for suicidality there have been two recent antiepileptic drugs that have been approved and both then contain within the warning section this general class warning about suicidality. The FDA has also asked manufacturers of previously approved antiepileptic drugs to update their package insert and our understanding is that labeling request is very similar to that of the recently approved drug.

So, all the antiepileptics will have the same language. There’s nothing in that warning that speaks specifically to the individual agents and we don’t have any reason to believe that Solzira has any exceptional safety risk with regard to suicidality. Although we’re not seeking approval for epilepsy, I think from a standpoint of caution the FDA will probably ask us for that similar warning letter or warning information on our label.

Unidentified Participant

Great. Thank you very much.

Ron Barrett

You’re welcome.

Operator

(Operator Instructions) Your next question will come from the line of Michael Yee with RBC Capital Markets.

Michael Yee - RBC Capital Markets

Great. Just a quick follow-up on that question again; in terms of the opt-in, I think you said the opt-in decision doesn’t impact the $55 million to $60 million in burn. Is that because you are or not assuming the opt-in fee or is it because you can defer the opt-in fee against the cost after pre-launch, is that how I should think about it?

Ron Barrett

The way you should think about it, is as it stands now we have net sales royalty unless we do something else with the opt-in and so we have not assumed that until we in fact opt-in. The answer to your question was in the second part of your question. The reason it is not expected to change the ‘09 cash burn guidance is because of this provision that we announced early in January.

Bill Harris

Michael, let me just jump in. You used the phrase opt-in fee, which suggested to me that you thought there was some consideration that we needed to pay to exercise the option to go into the profit share co-promote and that’s not correct. There is no financial obligation in connection with the exercise of that option.

Michael Yee - RBC Capital Markets

Okay, very good. Thanks.

Ron Barrett

You’re welcome.

Operator

And at this time there are no questions in queue. Do you have any closing remarks?

Ron Barrett

Yes. Thank you for your participation in the call today. If you have any questions, please feel free to call us at 408-616-7220 and have a great day. Thank you.

Operator

Ladies and gentlemen, this completes today’s XenoPort fourth quarter financial results conference call. You may now disconnect.

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Source: XenoPort Inc. Q4 2008 Earnings Call Transcript
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