XenoPort Inc. (XNPT:US), the maker of the drug Horizant to treat restless-legs syndrome, should shift spending to an experimental multiple sclerosis treatment and replace its chief executive officer, shareholder Clinton Group Inc. said in a letter to management. The shares rose.
Clinton Group has increased its stake in the drugmaker to more than 1.3 million shares, President Greg Taxin said in the letter today addressed to XenoPort CEO Ronald Barrett, a copy of which was obtained by Bloomberg News. That stake would make Clinton Group one of Santa Clara, California-based XenoPort’s 10 largest investors (XNPT:US), according to data compiled by Bloomberg.
Planned spending to market Horizant should be redirected to further clinical trials of the company’s compound XP23829, to potentially treat relapsing-remitting multiple sclerosis and psoriasis, Taxin said in the letter. XenoPort’s shares had fallen 27 percent this year through yesterday, compared with a 48 percent increase in the Nasdaq Biotechnology Index.
“Capital markets have largely ignored the prospects for 829 because XenoPort’s operational, strategic and capital allocation history suggests that XenoPort will not execute well on this golden opportunity,” Taxin said. “The stock market is betting against our management team and strategy, not against our compound.”
XenoPort didn’t return a call seeking comment.
The drugmaker’s shares gained 5.8 percent to $6.02 at the close in New York. After called-for changes that could position 829 as a better treatment than existing options, XenoPort’s fair value may be $13 to $16 a share, Taxin said in the letter.
XenoPort and GlaxoSmithKline Plc (GSK) agreed in November to end a partnership in which London-based Glaxo manufactured and sold Horizant in the U.S., after a marketing dispute.
Activist funds generally acquire equity stakes in companies and try to force corporate management and directors to make changes that boost share prices and investor returns. Clinton Group has also set its sights in recent weeks on weight-loss companies Nutrisystem Inc. (NTRI:US) and Vivus Inc. (VVUS:US)
XenoPort’s experimental drug is similar to Biogen Idec Inc. (BIIB:US)’s Tecfidera, a pill approved in March to treat multiple sclerosis, Taxin said in his letter. He contends that XP23829 has a more favorable side effect profile than Biogen’s drug, which analysts estimate (BIIB:US) will draw $3.4 billion in 2016 revenue for the Weston, Massachusetts-based biotechnology company.
“It appears to us that 829 is poised to follow in the footsteps of other ‘second generation’ biotechnology blockbusters that, even with just small improvements in efficacy, dosing or side effects, have proven to be substantial clinical and commercial successes,” Taxin wrote, citing Celgene Corp. (CELG:US)’s Abraxane, Shire Plc (SHP)’s Vyvanse and Regeneron Pharmaceuticals Inc. (REGN:US)’s Eylea.
It could take many years to get a clear picture of 829’s potential and differentiation from Tecfidera, Eric Schmidt, an analyst with Cowen & Co., wrote in a research report this month. Based in New York, he has a “market perform” rating on the stock.
“Given Tecfidera’s clean label and early commercial success, management claims that ’829 has received a lot of attention from potential partners,” Schmidt wrote. “We believe that trials of ’829 in MS will require much investment over many years’ time, and be associated with uncertain commercial rewards.”
Taxin also called for a new CEO “who will think like an owner, with a mandate to urgently execute on the company’s best prospects and grow the value of its most promising asset, 829.”
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