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Executives

Jackie Cossmon - IR

Ron Barrett - CEO

Bill Harris - SVP, Finance and CFO

Bill Rieflin - President

Analysts

July Johnson - Piper Jaffray

Davis Bu - Goldman Sachs

Michael Aberman - Credit Suisse First Boston

Yale Jen - Maxim Group

Raghuram Selvaraju - Hapoalim Securities

Edward Aaron - RBC Capital Markets

Boris Peaker - Rodman & Renshaw

Juan Sanchez - Ladenburg

Greg Wade - Wedbush Morgan

Lucy Lu - Citigroup

XenoPort, Inc., (XNPT) Q1 2009 Earnings Call May 5, 2009 5:00 PM ET

Operator

Good afternoon, my name is Heather and I will be your conference operator today. At this time I would like to welcome everyone to the XenoPort First 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, Heather. 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 and the timing thereof, the regulatory process 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 will turn the presentation over to Ron.

Ron Barrett

Thank you, Jackie. Thank you all for joining us on today’s call. 2009 has been an eventful year so far, regulatory and clinical milestones and strategic decisions.

In March the FDA accepted the NDA for 512 that was filed by GSK for the treatment of moderate-to-severe primary RLS.

If approved by the FDA 512 will be the first non-dopamine analgesic agent for the treatment of RLS and could be an important new treatment option for these patients.

We just presented new data from our three pivotal studies at the AAM meeting last week which demonstrated that 512 reduces many of the troubling symptoms experienced by RLS patients including pain and sleep disturbance.

We remained optimistic that these efficacy data generated for the 512 RLS program will result in favorable action by the FDA.

Since the beginning of the year we also announced data from two clinical studies of 512 conducted by our partners. Astellas reported positive Phase 2 results for 512 and an RLS trial conducted in Japan. We look forward to further progress by Astellas towards the approval of 512 for RLS in Japan.

GSK announced results from its trial of 512 in the patients suffering from painful diabetic neuropathy neither 512 nor pregabalin demonstrated a specifically significant difference from placebo from the primary end point. Possibly as a consequence of the high placebo response that was observed in the study.

While we are disappointed that there will likely be a delay in the advancement of GSK's 512 PDN program into Phase 3. We remain encouraged by the efficacy trends in the trial, including additional analysis recently conducted by GSK and the safety of 512 that was observed in the study, we will be working closely with GSK to explore next steps in the program.

Following the acceptance of the GSK NDA for 512. We made an important decision to co-promote 512 in United States. This decision offers the opportunity to maximize the XenoPort stock holder the potential value of our entire product portfolio.

Pending FDA approval 512 as a treatment for RLS we planned to hire 50 to 100 sales reps todetail 512 to physicians that prescribe drugs for the treatment of neurological diseases. GSK will book sales for 512 and maintain a joint P&L for revenues and pre-specified costs will be recorded.

We will then receive a portion of the losses or profits from this joint P&L. Importantly we have structured this agreement to help control costs that go into the joint P&L, for example all development costs for future potential indications are being paid for by GSK. And marketing and sales costs are limited out pocket marketing costs and detail fees for each sales.

We believe that these negotiated terms will be beneficial to XenoPort stock holders but in the event that the joint P&L is not as profitable as we hoped we have the ability to revert at any future time to the original med sales royalty arrangement.

Looking forward, GSK is also running trials testing 512 in post-herpetic neuralgia patients. These trials have recently completed enrollment. Additionally a large study that is evaluating 512 for migraine prophylaxis continues to enroll. We will look forward to the results of the PHN trials later this year.

Turning now to 986 we will be reporting additional data from the Phase 2 clinical trial at the DDW meeting on June 1st. We believe that this data firmly supports the potential of 986 as a treatment GERD sufferers who are incomplete responders to PPI. We are now planning the next trial of test 986 as an adjunctive therapy at PPI in it's incomplete responder population. We hope to begin this Phase IIb trial later this year. We also remain on-track to report the top line results from the 986 Phase II specificity trial by mid year. In addition, we believe we are making good progress enrolling patients in the Phase II safety and pharmacokinetic trial 986 for the treatment of pain associated with acute back spasms and nerve muscular origin.

We expect the results of this trial later this year, these results from these trials will be an important factor for the development patch for 986 beyond GERD.

Finally, we have completed repeat those pharmacokinetic studies 279 that showed less variability and flatter PK profile than Sinemet dosed in the same healthy subjects. We intent to began our PK trial 279 in Parkinson's disease patients later this year.

With that I will turn the call over to Bill Harris.

Bill Harris

Thanks Ron and thanks all of you for joining us on the call today. I will spend a few moments reviewing our financial results for the first quarter of 2009 and we will then take your questions. Revenues for the first quarter of 2009 we were $26.3 million compared to $15 million in the same period in 2008, the increase in revenues for the first quarter was a result of increased revenue recognized under our GSK and Astellas agreements related to the milestone payments associated with the acceptance of 512 NDA. Partially offset by a decrease in revenues recognized under our benadine agreement.

Research and development expenses for the first quarter of 2009 were $21.8 million compared to $18.6 million for the same period in 2008. These recent expenses for the quarter was primarily due to increased development activities for 986 and 279, and increased personnel cost resulting from increased headcount and increased non-cash sock-based compensation partially offset by decreased development expenses for 512.

General and administrative expenses were $7.7 million for the first quarter of 2009 compared to $5.6 million for the same period in 2008. The increase in the first quarter of 2009 compared to same period in 2008 was primarily due to increased personnel and related cost resulting from increased headcount and increased non-cash stock-based compensation.

Net loss for the first quarter of 2009 was $2.7 million compared to a net loss of $7.3 million for the same period in 2008. Basic and diluted net loss per share was $0.10 for the first quarter of 2009 compared to $0.29 for the same period in 2008.

Finally, at March 31, 2009 we had cash, cash equivalent and short-term investments of $143.3 million, this includes a long-term payment of $20 million received from GSK related to the acceptance of the 512 NDA. The acceptance also triggered a $3 million payment from Astellas that was received in April.

With that we will now open the cal for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Amsellem with Piper Jaffray.

July Johnson - Piper Jaffray

Hi, this is July Johnson for David Amsellem. Thanks for taking my question. The first is on the 986 based study? What dosage of the drug you are testing and can you remind us what the primary end point is?

Ron Barrett

The dosages that are being tested are 10, 20 and 30 milligrams BID. So a total dose of 20, 40 and 60 milligrams a day. The primary as BID as I said, the primary end point in the study is the ash worth scale that measures muscle tone. And this is a scale that's been used historically and specialty trials spinal cord injury or multiple sclerosis.

July Johnson - Piper Jaffray

Okay, that’s helpful. Thank you. And then could you go through your thoughts on the possibility of an advisory panel meeting for 512 in ROS.

Ron Barrett

So, we cannot provide any information with regard to the regulatory interaction between GSK that’s really their decision on what they disclose, since it’s their NDA, they submitted the NDA. I will say that while it is true that NCEs now also have the advisory committee there are discretion given to the division director as to whether there is one that is necessary and in this division there have been two recent anti-epileptic drugs which were NCs and which there was not an advisory panel. So, I can't comment specially but I don't think it's 100% sure thing that we would have an advisory committee.

July Johnson - Piper Jaffray

Okay, great. Thank you, I will jump back in queue.

Ron Barrett

You are welcome.

Operator

Your next question comes from the line of Davis Bu with Goldman Sachs.

Davis Bu - Goldman Sachs

Hi, thank you for taking the questions. The first question is on well I guess both on 986. Are there any updates on your partnering discussions and especially with when the data coming out (inaudible) and initiating a trial in the second half, but how do you think about partnering when the data releases around the trial.

Ron Barrett

Sure, I will start and Bill can pick up with my comments. We are operating a program and continuing to build value in the multiple indications as you are aware we have three indication any one of which could be very interesting for (inaudible) and each represent slightly different issues with regard to development and in commercialization. So, with that context let Bill address your comments specifically.

Bill Harris

Yes, I think that’s right, and what I would add Davis is that the universe of partners might be different for each of the indication, so for example you might have some partners who are interested in all of the indications. You might have other partners that are interested in one of the indications more than the others. In the past we have indicated that the GERD indication is particularly popular one element of partnering circuit, but it is true that the existence of these other indications creates some challenges. I think it's also fair to say that at any point along the evolution of this asset we had data that was coming and there was always a challenge we doing partnering as to whether you continue to invest or whether you harvest at a particular time. We said previously that we had offers for these assets and every phase including before got in demand and beyond that as you probably know we make the practice not to guide along timing of potential partnerships, but I just want to assure everyone that we remain in active discussions regarding these assets for multiple indications.

Davis Bu - Goldman Sachs

Thanks. And also on 986 for the back paid trials, I know it’s a different molecule and a different indication. But I was wondering if you could provide some background on sort of what the placebo response rates for back pain have been and how easy it has been to conduct trials in that area?

Ron Barrett

Well there have been several drugs that have been successful and still like positive studies and again approved for the treatment of acute back pain those include cyclobenzoprine, flexeril and recently the one day (Inaudible). So its not impossible to have successful trial, they are a little bit tricky because acute back spasms that cause pain and discomfort have a natural resolution with just rest. And so it's important to be able to assess the benefit of the drug early before the natural recourses improvement. And if you don’t do that, you are going to have high placebo effect obviously.

So typically these assessments are done within four days of the initial dramatic event the causes the spasm. And one of the reasons why we set this trial up the way we did because we are wanting to know what the tolerability of the drug is in a situation with no titration. And (inaudible) used for treating acute back spasms there is quite a lot of off label use there. The problem with (inaudible) back and itself is you have this pharmacokinetics that lead to a very rapid rise in drug levels that maybe responsible for some of the intolerability. And then also its got a relatively short half life so the last dose of the day doesn’t less throughout the night. So the hope is that we can get 986 to deliver the R-isomer of baclofen in a way that reduces that the intolerability because of the flat profile and because potentially of the single isomer. And that this would allow us to get enough drug on board so that we can have rapid efficacy.

Davis Bu - Goldman Sachs

All right, thanks for the clarity, I will back in queue.

Ron Barrett

Thank you.

Operator

Your next question comes from the line of Michael Aberman, of Credit Suisse First Boston.

Michael Aberman - Credit Suisse First Boston

Hi, can you guys hear me okay.

Ron Barrett

Yes, hi, Michael.

Michael Aberman - Credit Suisse First Boston

Great, can you guys here me okay. I apologize, if I cut out. You two DPN trials that had high placebo rates, one in Japan and one in North America. I guess it highlight the challenge of some of the neuropathic pain trials in terms of placebo rate, can you help us with the post-herpetic neuralgia trial is anything different or unique about that trial that your hope will perhaps eliminate or reduce the risk of high placebo response rate, and give us some confidence in that trial? And also can you go just over timing wise next trial to read our is the spasticity trial for spinal cord injury, is that correct and then next one after that will probably the (Inaudible)

Ron Barrett

Yeah, let me take your last question first, I think, we have stated that this spasticity study will be reporting our mid-year, the PHN studies completed enrollments in the last couple months, one study is 14 weeks of duration. So I think its reasonable to assume that that would be later this year not during the summer.

We haven't commented on the enrollment for the acute back spasm study other than they say its going well, to relatively short treatment and we expect to result of this year. So where I can give you clarity on spasticity be in next I think the other ones are still up in the air. And your other question about the placebo effect is a very important one. We knew that PDN studies in particular had had fairly high failure rate many times due to high placebo effects.

That does not seem to be the case with PHN historically, there are two gabapentin study that were positive and supported the registration for gabapentin, there were multiple pregabalin studies that were conducted, the only study that fail to reach statistical significance was one in which was very low doses of pregabalin was tested and what's known now is they were probably sub therapeutic doses. But they were at least by my assessment three successful pregabalin studies and post-herpetic neuralgia and no failed studies, 13 weeks duration.

So I think there is a fundamental difference between PDM and PHM with regard to failed studies and placebo responses is that due the fact that while both are neuropathic pain conditions, the post-herpetic neuralgia patients tend to have more intense and more localized pain and they intend to be more homogeneous as a population than diabetic neuropathy. I think that’s all speculation, specifically the trial that is ongoing with GSK, one major difference between this study and the PDM study is, this study does not have pregabalin positive control. I mentioned last week on the call that for instance principle possible that inclusion of a positive control can't create and expectation of efficacy that reach too high, placebo effect it’s a four arm study, there are multiple pregabalin study that were four-arm study they were successful. So we are as hopeful as we can be recognizing that any time we do pain studies, there is always the possibility of failure, not because of the drug but because of the study in placebo response in the study.

And I firmly believe that gabapentin is an active molecule in reducing pain in neuropathic pain and that 512 delivers gabapentin much more effectively than get oral gabapentin it self. So that's the reason we believe.

Michael Aberman - Credit Suisse First Boston

All right, that’s actually very helpful.

Bill Harris

If I could just ask been in terms of the, are you ready fully recognized that milestone you receive (Inaudible) this quarter's revenue.

Ron Barrett

Essentially yes, we've recognized about 23 million from the GSK agreement this quarter, a substantial portion of the 20 million plus a portion of the prior out deferred was recognize.

Michael Aberman - Credit Suisse First Boston

Great thank you.

Ron Barrett

The 3 million from stylus was not in the first quarter but we received the after the close of the quarter.

Ron Barrett

It was not receive but it was recognized in the quarter.

Michael Aberman - Credit Suisse First Boston

Okay thanks guys.

Ron Barrett

You are welcome.

Operator

Your next question comes from the line of Dr. Yale Jen with Maxim Group.

Yale Jen - Maxim Group

Thank you for taking the question.

Ron Barrett

You are welcome.

Yale Jen - Maxim Group

Just a few smaller questions, the first one is that GSK indicated that the migraine prophylactics for the five month data would be released in this year as well?

Ron Barrett

No GSK has not given any guidance on when that study would be expected enroll, it is the large study, 450 subjects and it is still enrolling.

Yale Jen - Maxim Group

Okay and the second one is that in the DDW meeting you probably going to present a little bit highlights in terms of 986 the study for the GERD. Would you give us a little bit preview in terms of what we should anticipate, what the specifics of what you might mention.

Ron Barrett

Yeah I don’t want to pre-empt our presentation, but what I indicated previously that I was consistent trends of efficacy, many of them reaching to statistical significance. On not only the primary end point which was heartburn but also on regurgitation and there is a number ways of looking that heartburn regurgitation, either in reduction from base lines, complete response. Measures like that will be shown as well as from data on sleep improvement to the study.

Bill Harris

And this was for those patients who are incomplete responders to PPI on the primary end point.

Yale Jen - Maxim Group

In this study the PPI will be co administrated as well I am I correct?

Ron Barrett

The planned study that will start later this year will be 986 or placebo added on top of PGI.

Yale Jen - Maxim Group

Okay great. And quickly the last one is that for the PHN study, the data release will be for both studies or just one in this year.

Ron Barrett

GSK has not changed its guidance and it’s our belief that the results of both studies will report out this year.

Yale Jen - Maxim Group

Could be same time or could be at different times.

Ron Barrett

I think that's to be determined, they will be completed at their own pace. If it turns out, they complete at the same time which I think is probably unlikely ,but it could be at the same time but I think we will probably report them as we get them.

Yale Jen - Maxim Group

Okay I'm sorry just last one. In terms of Japanese (inaudible) development would you give us a little bit time line in terms of sort of possible pivotal study and may be approval time line.

Ron Barrett

Well unfortunately I can't because Astellas has not disclosed its regulatory strategy on RLS but I will say that it could range from the current study in combination with our existing US conducted RLS studies could be submitted in NDA as part of a bridging strategy. Alternatively we may have to complete a another study demonstrating efficacy and safety in Japan. So hopefully we will get some updates on that as the year progresses. But importantly I think that there is a strong possibility that we're, it could be that the drug approved for RLS in Japan which we think would be very exciting.

Yale Jen - Maxim Group

Any sort of market potential in the Japanese markets being mentioned.

Ron Barrett

We have not given any disclosures on that, obviously we have some estimates, there has been immunology studies that have suggested that while the prevalence may be somewhat lower than in western countries, there is still a significant number of RLS patients in Japan.

Yale Jen - Maxim Group

Okay great. Thank a lot I will get back in queue.

Ron Barrett

You are welcome.

Operator

Your next question comes from the line of Raghuram Selvaraju from Hapoalim Securities.

Raghuram Selvaraju - Hapoalim Securities

Hi. Thanks very much for taking my question. Can you hear me?

Ron Barrett

Yes we can Ram.

Raghuram Selvaraju - Hapoalim Securities

Okay. Firstly you mentioned that there are couple of antiepileptic drugs that has been improved recently without advisory panels, do you have the names of those drugs.

Ron Barrett

One of them is lacosamide and the other one is I think it's [asi] pediatric epilepsy drug.

Raghuram Selvaraju - Hapoalim Securities

Okay this next one is for Bill Harris. This 3 million milestone payment associated with acceptance of the XP13512 [NBA] you said it was received in April so does that mean was it recognized in the first quarter or will it be recognized in the second quarter?

Bill Harris

No as you may recall we recognized milestone payments differently under the GSK and the Astellas agreements given the inherent differences in our obligations on the agreement. So with the Astellas it was recognized and booked as receivable at March 31 and was subsequently received in April.

Raghuram Selvaraju - Hapoalim Securities

Okay. And with the milestone schedule under the GSK agreement, you had previously mentioned that there was no specific milestone under the GSK agreement associated with the PDN study. Is that also the case for the two PHN trails and what about the migraine trail, are there specific milestones associated with those?

Bill Harris

Ram its Bill. We made a promise of not disclosing the specific milestones to which we are entitled under our various agreements and so that would, I tried both the question you asked regarding the PHN trail as well as the migraine prophylaxis trails.

Raghuram Selvaraju - Hapoalim Securities

Okay.

Bill Harris

To be clear the reason why we answered the question for DTN is it was relevant as to our cash burn guidance for 2009.

Raghuram Selvaraju - Hapoalim Securities

Okay and then just very quickly there was information coming out of the recently completed A and regarding the activity profile of Lyrica pregabalin in RLS. Could you just say a few words about the PK profile of Lyrica versus XP13512 and what you would expect that to potentially translate in to, in the RLS setting.

Bill Harris

Sure that was an investigator lead study, small study while interesting its very hard to compare those results to, in particularly we've done, we've done a full set of Phase III study that was a small study. Pregabalin like gabapentin has rapid absorption and relatively short half life. And so that study that was presented as well as what I believe Pfizer is doing and the study if they are dosing pregabalin one to three hours before that. We wont be able to sustain the blood levels through out the same way 512 does and we know that a significant number of RLS patients suffer from early evening and some of them day time symptoms. In the case of 512, we dose it 5 pm, we peak at around midnight, we sustain levels throughout the night, they come down in the morning but they don’t go down to zero during the day. We showed in our study that we’re able to treat symptoms throughout the day. I don’t believe that you would be able to do that with either Lyrica or pregabalin based on pharmacokinetic of those drugs.

Raghuram Selvaraju - Hapoalim Securities

Okay. Thank you. It's very helpful. And then just the last thing, Bill, if you could just reiterate to what you had previously announced for 2009 cash burn guidance?

Bill Harris

Sure. At the beginning of the year, we’ve provided our annual guidance in January we provided a net cash burn guidance for '09 between $55 million to $65 million.

Raghuram Selvaraju - Hapoalim Securities

Okay. Thank you very much.

Bill Harris

You’re welcome.

Operator

Your next question comes from the line of Michael Yee with RBC Capital Markets.

Edward Aaron - RBC Capital Markets

This is actually Edward Aaron on behalf of Michael Yee. I had a question on 986. I guess it's difficult I understand to give time in partnership. But in terms of assuming positive data, what are your plans for the next step, I mean are there indications that should taken to the next stage perhaps Phase III that are more affordable than others not as GERD cut trials essentially? And the second question I have is on 512 have you any discussions with the FDA on the high dose versus low dose, what basically give support to the high dose for RLS?

Ron Barrett

986 our plans as I articulated earlier, we are planning to start to Phase 2b GERD study later this year and we will make a decision as to whether we continue to and what we do in spasticity and to our acute back spasms is really based on the data. I think you’re correct in saying that not all of these indications would necessarily cost the same for Phase 3 development. We were doing that analysis but until we have the data, I think it's premature to make any decisions. Interlaced in that is the discussions that we’re having with the potential partners and we may end up in an arrangement in which these indications, responsibilities for development are shared whether it's tier, sequencing of the indications in a way that makes sense. We will say all three of these indications we believe that 986 could provide benefit over existing therapies and all of them represent attractive commercial opportunities to different degrees. In some cases you may require a primary care partner to maximize the product. And the second question?

Edward Aaron - RBC Capital Markets

The question is about FDA discussion in 512.

Ron Barrett

Right. So, issue of the 600 milligram versus 1200 milligrams has been the one we have been discussing for some time. We showed some data at the AAN meeting last week on one of the secondary end points loss, switch scale, on a numerical level there were a couple of the end points that 1200 performed better than 600 on day time (inaudible) in particular, 1200 did not really separate, sorry 600 did not separate from placebo and 1200 gave a very robust improvement in daytime sleepiness. We think that is consequence of the sleep benefit that’s provided by 1200 over 600.

As I’ve said in the past our NDA contains an analysis of this issue both on a dose level as well as an exposure level. And we remain confident that this analysis says that the higher dose and higher exposures lead to clinical benefit without paying any penalty from the safety tolerability. Now I can't say categorically that the FDA may come up with a dosing recommendation that says well start with 600 and if you have benefit stay at 600 if you don’t go up 1200 but we think our data provides strong rational regarding to 1200. And in our long-term safety assessment in which patients were allowed to flex dose between 600, 1200 and 1800, by far the majority of patients went through higher doses of 1200 and some went to 1800. So, that I think in some ways may represent a little bit better than a fixed dose five-arm study that’s going to happen in the real world when patients have this drug available.

Edward Aaron - RBC Capital Markets

That answers it. Thanks.

Ron Barrett

You’re welcome.

Operator

Your next question comes from the line of Boris Peaker with Rodman & Renshaw.

Boris Peaker - Rodman & Renshaw

Hi, and thank you for taking for my question. First, a clinical question on RLS, in your studies were you measuring iron of the recruited patients?

Bill Harris

Yes, we had active criteria on ferritin.

Boris Peaker - Rodman & Renshaw

And were patients allowed to take oral iron and if so is there any correlation with efficacy and initial iron versus iron taken during the trial?

Bill Harris

Additions were excluded if they had low ferritin level. They would not allowed to, there will be no rational to have Iron if they had normal ferritin levels and entry.

Boris Peaker - Rodman & Renshaw

Okay, so that was an exclusion right here. And my second question is on the co- marketing plans for RLS with GSK’s, specifically how you going to decide on the geography of which salesmen goes where, any other drugs then maybe they would be co-marketing, the sales incentives, just the whole structure of the sales force deployment for this drug between you and GSK?

Bill Harris

Sure, Boris it's Bill. As we have indicated we are going to field a sales force between 50 and 100 reps. The sales force is going to be geographically distributed across the US and it's going to focus on prescriber’s of neuropsych type drugs, neurologist and PCP’s who are high defile prescribers of neuropsych drugs. In terms of how the specific allocation is going to be a accomplished, post exercise of the co-promotion auction we have constituted a joint commercialization committee that has represented by both GSK and XenoPort, as you know Vince and Gary are our Chief Commercialization Officers and we are leading up that effort from our side. And the determination on a specific territory-by-territory basis is going to be made by that committee collaboration with our GSK collogues.

In terms of the incentives that are provided to our sales reps and to reps that GSK is going to be fielding for this drug, we can’t get into the specifics of that but I think it's fair to say that there is nothing out of the ordinary regarding plans for incentives for a drug of this commercial potential.

Boris Peaker - Rodman & Renshaw

And do you know GSK is going to be also putting other drugs in their kind of a basket of their sales people that OTE marketing Solzira?

Bill Harris

Sure, I mean it's very rare situation where GSK sales force is only detailing one drug. And it's also worth pointing out, that are our sales reps are likely going to be promoting more than one drug in addition to 512. We have the right to detail the GSK quid, Re-quip XL to renews subscribers. So our sales force is going to have those two and GSK reps are likely to be detailing in a primary and secondary slots, 512 as well as some other GSK priority product.

Boris Peaker - Rodman & Renshaw

And if there provision in the sales contract if you pull out with the co-marketing plan after whatever six months later, nine months later you decide that it's not working. Does GSK get to kind of take over the sales people that you hired because they already established some relationships, or did those sales people kind of stay on board with you?

Bill Harris

It seems to me in the events or whatever reason we decide to revert back to the net sales royalty arrangement and walk away from the co-promotion deal, that it would up to GSK to determine whether they would like to employ the sales reps that we have trained and put on a 512 commercialization effort.

Boris Peaker - Rodman & Renshaw

Hi Ron, Thank you very much.

Ron Barrett

You are welcome.

Operator

Your next question comes from the line of Juan Sanchez with Ladenburg.

Juan Sanchez - Ladenburg

Good afternoon, guys.

Ron Barrett

Hi, Juan.

Juan Sanchez - Ladenburg

One question is how is your free commercialization P&L with lots of going to affect your P&L this year? I mean I know that there suppose to be funded for expenses, how much going to through your P&L the launch of this going to be deferred accounting and balance sheet from there?

Bill Harris

You are correct that the pre-launch, our share of per-launch marketing costs, our payment of our share will be deferred until after the launch of the drug. But we will start recognizing our share of the expenses on our P&L.

Juan Sanchez - Ladenburg

Okay. The second question is any of the GLax plans for 512 exUS, in terms of Europe and other countries?

Ron Barrett

Jay has not disclosed any of their plans and actions in other territories beyond the US.

Juan Sanchez - Ladenburg

The other question is there for the GERD program. How are you going to define a partial refunds going forward. I mean what's the definition of partial refund?

Bill Harris

Well, that’s something that we are sill working on with the protocol itself that we were hoping to finalize and get the study started later this year. A larger will be based on medical history. We have an open question of whether in the trial, we would actually take somebody of of off PTI and put back on their partial responder. That adds lot of complexity to the study, we think with that we would rather not do that, but really rely on both the physician history with that patient to determine whether they had a partial response.

Juan Sanchez - Ladenburg

And my last question is if I understand that this practices trial has few patients enrolled. I know if I cross over study, but what’s the definition of success for this trial and if there is any powering assumptions or something that we should focus on?

Bill Harris

Well, I think it is important to remember from our perspective what the objective of this study is. It is the first day of 986 in this patient population that we believe has significant unmet needs baclofen (inaudible), while effective have side effects and stop it from short half-life and loss of efficacy particularly at night. Although baclofen is approved for its spasticity in spinal cord injury patients.

The number of studies that were conducted for approvals is rather limited, it was approved in early seventies, I believe, so I think there is number of things that we're looking fo,r one is we want to get a sense of tolerability of 986 in this population. A flatter pharmacokinetic profile, the single isomer lead to good tolerability. And second I think we want to get experience with the end-points the Ashworth Scale has been used in the past we have other end-points in the study.

We have not defined the Ashworth Scale as the primary end-point but we're looking to gain knowledge about the appropriate end-points for conducting studies in the future.

Part of the rationale of conducting the studies is already been met. We've got to realize that recruitment of spinal cord injure patients is challenging. They are usually on the existing therapy to get them to enter into a placebo controlled study is difficult. And so we may have to continue to develop the molecule in spinal cord injuries. May have to think about an alternative design such as the randomized withdrawal study or something like that and we'll get some information about what happens when you take patients off of active drug because those patients whose sequence is 986 first and then go to placebo in the second period, that's essentially a randomized withdrawal study, so I think this is lot about (inaudible), it is powered to see a statistically significant effect on cash flows.

Using assumptions on a historical effects of effects of baclofen but I would relatively admit that the amount of data that's available is sparse. And I think the most important thing is tolerability evidence of efficacy, understanding of end points that are appropriate for study in this patient population.

Juan Sanchez - Ladenburg

Thank you very much Ron.

Ron Barrett

You are welcome Juan.

Operator

Your next question comes from the line of Greg Wade with Pacific Growth Equities.

Greg Wade - Wedbush Morgan

Bill Rieflin just wondered if you might update us following 9th d data in the group, did you receive any new term sheets for the molecule, thanks.

Bill Rieflin

I think it is fair to say Greg that in the wake of the all 57 data that we received in December that we have been out speaking to the parties that have historically been interested in the program and I think its also fair to say that the data caused parties that have historically not been following the program too closely to become interested. In terms of receiving additional term sheets or what the exact status is, I think I am going to beg off that one in this period, its little too close to providing guidance to when we expect the deal, is it suffice to say that data was in interest to perspective partners not surprisingly as we've said before there have been prospective partners historically who have been concerned about the tolerability of 986 in the GERD patient population because of the experience with racemic baclofen, I think that among the most important takeaways from that 57 study is that 986 is surprisingly well tolerated in GERD patient population.

Greg Wade - Wedbush Morgan

And if I just may press you, do you have any offers in hand that could be potentially acceptable for the product? Thanks.

Bill Rieflin

So, again acceptability is a function of many things. I think when people talk about acceptability they tend to be thinking about financial acceptability and what I would say is that we had offers on this that have been financially attractive for sometime. But as those of you that have been following story such as you Greg, for a long time know this is an interesting asset because of its multiple potential therapeutic indications. Those therapeutic indications are different in terms of what the commercialization channel would be, how it fits into our strategic plan. So, I think it's fair to say that we had interesting offers from a financial perspective for sometime and we are trying to soft solve for many variables and beyond that as I don’t want to comment.

Greg Wade - Wedbush Morgan

Thanks for taking my question.

Bill Rieflin

Sure.

Operator

Your next question comes from the line of Lucy Lu with Citi.

Lucy Lu - Citigroup

Great. Thank you. I just have to clarify for the 986 spasticity study, patients allowed any background medications for spasticity, or are they allowed any key medications in this study?

Bill Rieflin

No, there are not. They have to wash off their existing spasticity medication.

Lucy Lu - Citigroup

Okay. So, if that’s the case, are there some patients that are in the placebo phase that you seeing drop out?

Bill Rieflin

No, I don’t want to comment specifically on the drop out rate but the data that we have today it gives us confidence that we will have sufficient number of patients to conduct the analysis.

Lucy Lu - Citigroup

Okay. And then just one follow up, I think the main CNS pregabalin CNS study for Baclofen at higher doses are some there is some (inaudible). And I know some of it is due to the peak/trough regular baclofen. But can you please talk about, how SR formulation can actually get to the spinal cord with enough concentration without causing some of the side effects and I guess what I am trying to get at is will there be advantages besides last (inaudible) dosing for this program?

Bill Rieflin

The active drug, the R-isomer of baclofen is going to get into the CNS and the spinal cord similarly to the way the R-isomer of mixture gets, it needs to cross the blood brain barrier to get to the spinal cord. I think the belief, its certainly has been reflected in the data that we generated both in healthy subjects and GERD patients so far, is that by having a flatter profile and by potentially only having the single R-isomer, one can improve the tolerability compared to the racemic baclofen. So, we are not changing the way that the R-isomer gets into the CNS, we are just changing the kenetics, the rate of rise and perhaps the peak levels that occur and that may improve our ability.

Lucy Lu - Citigroup

Okay. Thank you.

Bill Rieflin

Just to add on the efficacy side, I do think that there is a reasons to believe that at night in particular, if we can sustain drug levels throughout the night, that would be a benefit compared to baclofen itself. Next question.

Operator

There are no further questions at this time sir.

Ron Barrett

Okay. I would like to thank you all for participating in the call today and we look forward to updating on further progress throughout the year. If there any further questions, please feel free to call us at 408-616-7220 and have a great day. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: XenoPort, Inc., Q1 2009 Earnings Call Transcript.
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