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Executives

Ron Barrett - Chief Executive Officer and Director

Analysts

David Friedman - Morgan Stanley

XenoPort, Inc. (XNPT) Morgan Stanley Global Healthcare Conference September 11, 2012 3:00 PM ET

David Friedman - Morgan Stanley

All right, so I think we'll get started. Thanks everyone for joining us and I'm David Friedman, Biotech Analyst here. In terms of our disclosure statement, you can find research disclosures at morganstanley.com/researchdisclosures, and I am joined by Ron Barrett here, CEO of XenoPort, and one of the best performing stocks in all of small and midcap biotech this year, so a lot going on and I would to go into it, so maybe if you can just a one or two-minute overview of the company, and then we can just jump right into the program.

Ron Barrett

Sure. Thanks for the invitation to speak today and I am going to be making forward-looking statements and you should consult SEC documents with information with regard to risks and uncertainties of our business.

XenoPort, it's a very interesting time for the company. We have a series of products and product candidates that are in different stages and walk through them one at a time. Our gabapentin enacarbil is an approved product in the U.S. and Japan, and Horizant is the trade name in the U.S. and Regnite in Japan.

It's approved for the treatment of moderate-to-severe primary RLS in the U.S. and Japan, and also for postherpetic neuralgia in the U.S. we are partnered with GSK in the U.S. and Astellas in Japan, and I would say that I really don't have an update on Horizant's. It launched last July. The sales have been blockbuster and it's been very frustrating for us as a company, and as you undoubtedly know we are in litigations with GSK, I don't really have any update on the litigation today.

Regnite launched in July this year, in Japan. We are very excited to see the Astellas' efforts in launching that product, its 1,200 sales reps; they are making a big effort. They estimate about $2 million moderate-to-severe primary RLS patients in Japan, so we'll get our first indication of the sales for the third quarter in the fourth quarter when Astellas presents their financial results. We have a high-teen royalty from sales of the product in Japan.

As you know launches in Japan, the prescriptions are limited to 14 days. People have to come back every 14 days in the first year of the launch, so it may take off little slowly, but Astellas has been a great partner for us so far there.

Next, for this long is arbaclofen placarbil or AP. We have an upcoming big event, the completion of our Phase III study for the treatment of spasticity and multiple sclerosis patients. We anticipate the results of that study in the first quarter of next year. We hope to file an NDA for that product in the second half of next year using a 505(b)(2) process that we have agreed to with the FDA and we do have an SPA for that Phase III study.

Next furthers along is 279, and L-Dopa, prodrug for the treatment of advanced Parkinson's disease. We had some interesting feedback from the FDA in June of this year, where they agreed to a 505(b)(2) path gave us very specific guidance on what a pivotal study has to look like and we are taking some efforts to get an SPA and to do some work in preparation for Phase III, but we won't proceed with Phase III until we have a partner or a financial resources change.

Finally, I think what has lot of investors excited as well as ourselves is an earlier stage product that started human studies recently and it is a fumarate-based product that we are potentially developing for the treatment of relapsing-remitting MS, and potentially psoriasis and it shares in common an active metabolite monomethyl fumarate, which is the same active metabolite that's found with the Biogen product BG-12 and the psoriasis product Fumaderm in Germany, and Phase I study the in-life phase has been completed and we expect the results of that study in October of this year.

Question-and-Answer Session

David Friedman - Morgan Stanley

Maybe we can start quickly with AP, the spasticity drug. You guys had positive Phase II data there and a slightly different population, so for people that may or may not have been following along with this program, can you just briefly describe what types of data you are looking to generate out of the Phase III program, and whether you see a lot of risk going from spinal cord injury to MS, or is spasticity given the underlying pathology.

Ron Barrett

I think most experts in the field would say that spasticity response to treatment independent of the original [neurology] of the spasticity, whether it's spinal cord, whether it's MS stroke or traumatic brain injury, and there are differences in the patient population, the spinal cord injury population, typically that's had spasticity for longer.

Multiple sclerosis patients obviously lot of things going with their disease progression, and it's the reason why we really took pretty stringent requirements of patient selection that's taken us while to recruit the right patients. We're requiring certain minimal level of spasticity, minimal level of disability and a maximum level of disability. We are looking at the spasticity to measurement of what's called the Ashworth Score.

We require that the Ashworth rater to be the same rater throughout the study. They are blinded from the investigator who is assessing the other. End points and side-effects of the drug and the primary Ashworth assessment for the primary end point is done six hours after dosing in the morning when the patient is in the clinic for the entire day and we control their environment during the day so that we can eliminate other extraneous stressors on the patients that may impact their spasticity.

It's a parallel design study, whereas the spinal cord study was a crossover study in 28 patients. This study is a parallel design study with approximately 200 total patients, and it's a placebo-controlled study. There is a one week of up titration and then the fixed dose is maintained for eight weeks and the primary endpoint is that the end of that eight weeks of maintenance therapy. We do have co-primary endpoints, but the Ashworth Score and the global impression improvement by the patient.

There is a lot of information available on the use of Ashworth in clinical studies for both, arbaclofen, tizanidine and Botox. I think there's good reasons to believe that that should be successful. There is less experience admittedly with patient global. It was used in some of the Botox studies it was successful, but there's not as much information available for that versus the Ashworth Score.

David Friedman - Morgan Stanley

Then in terms of the commercial side, this is a drug that at least in the past, you guys had talked about potentially if approvable commercializing on your own in at least the U.S. is that still your thinking and how much does it tie into what happens with Horizant, where you had sort of a promotion option that I guess may or may not exist in the future.

Ron Barrett

We do like the idea of us commercializing AP ourselves in the U.S. It's a relatively focused physician audience for the product, neurologist and new-build type patient, doctors. We estimate 50 to 75 sales reps could call on the approximate 9,000 physicians who may use the drug. We also believe that we can get good pricing and get on formularies if you think about the current situation for patients with spasticity, the oral generic baclofen and tizanidine are commonly used. The data that we have suggest that baclofen is by far the most commonly used agent in the MS population. Again, market research that we've done suggest that the failure rate on any oral fist-line therapy or baclofen specifically is in the 40% to 50% range, and so what happens when patients fail is oral first-line therapies while currently they will go on to some times the physician using benzodiazepines and other oral agents where for which there is really no good efficacy data and just adds to the side effects or they will go on to Botox or surgeries or and that they go back of a very expensive invasive procedure, so coming out of the approval hopefully. We think positioning this as the first option after you fail the generics is a good place. We have talked to payors about pricing. We think that we could have a very good profit margin at the pricing points that we believe we could charge in that position and there will be some programs that step at it is undoubtedly, but again if we are focused on what do you with those patients who failed the first-line therapy. We think that there is a good opportunity for the product.

David Friedman - Morgan Stanley

Then in terms of pricing is there anything you can talk about or good comp. you know that you can discuss…

Ron Barrett

Yes. I mean it's really premature to talk about the pricing but just kind of markers if you look at Ampura Fampridine, obviously that's pretty highly priced I believe close to $40 a day treatment. Then the other than extreme maybe if you looked Zenaflex before it went generic was in the $10 to $12 a day treatment. We haven't decided on pricing by any means, but that kind of puts some markers with regard to how we think about the pricing.

David Friedman - Morgan Stanley

Any questions anyone? Maybe just one last question on this program is one people are typically failing baclofen, what are they failing for? Is it sedation is it efficacy, is it compliance issues given the dosing schedule and of those which do you think that AP can potentially provide some benefit for?

Ron Barrett

The market research that we have done suggest that a large percentage, I don't remember the exact percentage side effects, but there's also substantial lack of efficacy and when we probe down why is that, it's not because physicians believe that you can efficacy. It's because the dose limiting dose-limiting tolerability doesn't allow efficacy to be achieved, so with a better therapeutic index that we think that AP has. We think that we'll be able to get the efficacious exposures to our baclofen without the tolerability issues, and we have the extended release formulation and in our spinal cord study and we will be assessing this in our Phase III study in MS. We show that the efficacy is maintained throughout the night, so we do the assessment in the morning prior to morning dose and we still have good efficacy in the spinal cord study, so a combination of those reasons. We believe that this could provide benefit to substantial number of patients in this market.

David Friedman - Morgan Stanley

Any question related to AP? So maybe we can just jump. In 279, you’re your Parkinson's drug sort of came back from being asleep for a little while and maybe if you can just discuss. You had mentioned that you guys have had sort of compelling discussions with physicians and otherwise around the profile on what you saw on Phase II and so maybe if you can just touch on a couple of the highlights there and then maybe we'll start there.

Ron Barrett

Our Phase IIb study, which was again a relatively small study and it's kind of a kind of a good news bad news. The bad news is we had a predefined primary endpoint that we missed. The good news is that we pharmacokinetics from the study excellent three times a day dosing compared to four or five times a day Sinemet, we have a much flatter profile and one that is not that different from what can be achieved intraduodenal pump that do a dopa pumps, so we can maintain levels relatively flat throughout.

I mentioned, we missed the primary end point there. We set a higher hurdle for that study. We had to beat four or five times a day Sinemet we think we understand some of the reasons for that and we are encouraged by experts in the field and talk to the FDA and see what the requires would be for approval and we are pleasantly surprised that they agreed to 505(b)(2) pathway and a single study supporting efficacy and efficacy that would include superiority data in our label, but they insisted that the study be of their comparison, so one of the questions in this field if you are going to compare a new L-Dopa therapy to existing Sinemet is how do you do that fair comparison and we observed in our study and Abbot observed in the Duodopa study that just simply optimizing Sinemet itself, you get about two-hour improvement in off times.

The FDA was very specific in what they require. We think it's doable and we are going to be submitting a protocol for Phase III trial, get their feedback and then think about going forward in the future.

David Friedman - Morgan Stanley

So, I guess the takeaway is optimize Sinemet considered fair given that you are providing incremental benefit by helping people take the drug and understand that drug appropriately or is there something else on top of that sort of would make it fair?

Ron Barrett

I think the fairness comes to optimizing the dose and the timing of the doses of Sinemet versus your therapy and showing that you reduced fluctuation in blood levels can actually provide benefit in terms of off time. If you don't have an optimized Sinemet, you spend a lot of time optimizing your treatment of course you are going to beat it.

David Friedman - Morgan Stanley

All right. Okay. In the opening, you mentioned that you would either be looking for partner or waiting more money to run this, so is this something where you want to get a path very clear with the FDA and sort off teed that up for a potential partner?

Ron Barrett

Yes. I think partners are going to want to know what the specifics of the Phase III design before they step forward.

David Friedman - Morgan Stanley

Okay. Any questions on this Parkinson's program? Okay. Maybe, in the last amount of time we have, we can time we have, we can talk about the fumarate program given the enhanced focus on it both, from investors and you guy are in the middle of some Phase I dosing. What are you hoping to ideally learn about the drug during the Phase I program.

Ron Barrett

Let me describe the study first and then I'll tell you what we hope to see out of it. The study is a single-dose fed versus fasted, test of four different formulations of 829, all at the same does of 829, and this dose of 829 is equivalent to 120 milligrams of BG-12 or dimethyl fumarate in BG-12, so it's a low dose. What we hope to get out of it is we'll be measuring the metabolism of 829 pro drugs, so we'll be looking at it. Does it produce monomethyl fumarate in the blood similar to what DMF does? Is the prodrug efficiently clean, so is there measurable level of in fact prodrug in the blood in the animal studies. There is not. We'll be looking at what we call the desmethyl prodrug, which is in this diester that we have or we have our group on one side and methyl group on the other side.

In order product monomethyl fumarate, the odd group has to come off and the methyl group has to stay on. If it occurs in the other order we'll get inappropriate (Inaudible) in all of our animal work. We have not seen that at any appreciable level. We hope to confirm that in humans.

Beyond that, we'll be looking at the PK profile at the level MMF. We are looking at the inter-subject variability in the MMF levels. One of the things that noteworthy about BG-12 is there does appear to be hi inter subject variability in MMF exposure and then we'll be looking at the fed versus fasted, so going forward are we going to dose with food or adopt to it. Does that matter? One of the formulations is in entericallay coated immediate release formulation, so it should produce the profile.

Once it gets through the stomach there should be immediate release and be similar to BG-12, and that we should get a rapid rising in a peak where the other three formulations are extended release formulation that should have a more prolonged time of exposure. MMF and one that may support once-a-day dosing.

David Friedman - Morgan Stanley

Then in terms of the multi-dose component is there? You guys have talked about in your animal models potentially lower GI irritation which is one aspect of the BG-12 safety profile. BG-12 has a couple of safety questions. Is there an opportunity in phase to show differentiation or is this your internal dose and formulation selection and really trying to differentiate versus BG-16 would after those?

Ron Barrett

Relatively currently is relatively dose 120-milligram equivalent of DMF, the single dose although given fasted and fed two weeks apart. At this dose, I wouldn't anticipate that GI side of things would be up here.

Flushing perhaps particularly with that immediate release formulation, so we are collecting adverse events this study. There's only 12 subjects per cohort. It is blinded, so we'll be able to make some comparison to Placebo in this study. But I think what are getting at is, what's the next steps and when do we get important new information.

Since we completed the financing in July, we've been working hard, putting together a plant further development of the programs, so that is well underway in terms of getting ready to do that. It starts with a ascending dose study, a typical a healthy subject Phase I, where you dose for maybe a week. You show it's safe you steady state pharmacokinetics, you move to the next dose and so on.

We want to do a radio labeled mass balance study to particularly understand the metabolism of the AD piece the unique thing that is found in dimethyl fumarate or BG-12, so that we can convince regulatory authorities that we are not introducing any new safety issues and we fully understand the metabolism.

We'd like to as soon as BG-12 is available, do a comparative pharmacokinetic study. There is some information in the literature with regard to BG-12 pharmacokinetics, but we would like to know what is the profile of the approved dose of BG-12, so that we can adjust our formulation dose and so on to try to get within the same level.

Then finally, we've been given serious consideration to when is the appropriate time to do a comparative tolerability study and how do you do that and how do you power it. We look at current study that Biogen has ongoing in which they are in healthy subjects, more slowly titrating BG-12 as well as using aspirin to potentially mitigate or lower the incidence of flushing. We think it can be done in healthy subjects and we can do it with BG-12 as a positive control and using specific questionnaires to look at tolerability, flushing and GI in particular

We think that that can be done maybe in the second half of next year depending on when BG-12 is available and that information set the comparison of the PK, the understanding of our subject variability, the tolerability comparison really is some information that we would want to have independent of whether we go psoriasis or MS, or potentially other indications, so we are committed to doing that while we talk to potential partners which will be ultimately the determiner of what the indication and regulator path would be.

David Friedman - Morgan Stanley

Do you need to wait for this sort of four version seven fasted trial to finish before are you going to then pick one and do your multi-ascending dose or is it going to be picked two? Do you have a sense what the.

Ron Barrett

The we're plan…

David Friedman - Morgan Stanley

Okay.

Ron Barrett

I have been asked how are you going to choose which formulation to move forward with and my answer is, I'll know it when I see it, because what we would like to see is no food effect, nice, consistent pharmacokinetics with lowering their patient variability, so when we see the data, we'll make that selection.

David Friedman - Morgan Stanley

Is there anything specific that would gear a molecule to be more or less successful in psoriasis versus MS or is it really just the same sort of core PK/PD characteristics that will help you. If it works, it works potentially in both.

Ron Barrett

I don't think today you could say that we understand whether there might be a difference, we look at the Fumaderm dosing that's been successful in psoriasis. If we look at the BG-12 studies that were done in psoriasis, the doses were not that different from what has been shown to be effective in MS, so I think if we move into psoriasis, we are going to have to do some dose ranging or selecting of dosing around what's known for BG-12, but today I am not sure you could say that there is an understanding of there being a real difference.

David Friedman - Morgan Stanley

Great. I think, we are out of time here, so thank you everyone for joining us. Thanks so much for joining us today.

Ron Barrett

Thank you.

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