NEW ISSUE: XENOPORT (XNPT) $100 MILLION 2.50% CONVERTIBLE SENIOR NOTES DUE 2/1/2022

XenoPort is a small biopharmaceutical company.  The company is juggling a few clinical trials and is going it alone, after an unsuccessful partnership, to commercialize its first marketed product.  The HOCS slash line of 67 Overall / 88 Growth / 25 Safety clearly illustrates the trade off between possible future growth and the inherent risks of a small biopharmaceutical company.      

XenoPort is a biopharmaceutical company focused on neurological disorders.  The company is currently commercializing Horizant, an approved treatment for restless legs syndrome (RLS) in adults and the management of postherpetic neuralgia (PHN), characterized by uncomfortable or unpleasant sensation in the legs, in adults.  Horizant was approved for RLS in 2011 and in 2012 for PHN.  At that time, it was being commercialized by Glaxo under a development and commercialization agreement dating back to 2010.  In 2013 all rights were returned to XNPT.  Horizant is marketed in Japan under the name Regnite by Astellus Pharma.

The pipeline includes XP23829 a treatment for psoriasis and/or relapsing forms of multiple sclerosis, which is currently in Phase 2 trials.  Top line results are expected in third quarter 2015.  The company could advance treatment to Phase 3 trials by mid-2016.  XP21279 is a potential treatment for Parkinson's disease.  Management will evaluate whether to proceed based upon available resources or signing a collaborative agreement.

XNPT recently signed an agreement with the National Institute on Alcohol Abuse and Alcoholism (NIAAA) under which the NIAAA will conduct a clinical trial evaluating Horizant as a possible treatment for alcohol use disorder (AUD).  The company will supply clinical trial material and the NIAAA will conduct the trial and fund all expenses.   

In July 2014 XNPT signed a development and commercialization agreement with Reckitt for its clinical-stage oral product candidate, arbaclofen placarbil.  XNPT received $25 million upon signing and can receive up to an additional $120 million in milestone payments plus royalties.  The $25 million was recognized as revenue in the third quarter 2014. 

Additional cash was raised through a stock offering in the first quarter 2014 resulting in net proceeds of $77 million.  The cash balance was $113 at the end of the third quarter 2015.  This compares to cash burn of $62 million over the last twelve months (adjusted for the $25 million milestone payment). 

Management estimates cash will be sufficient to get the company into the fourth quarter of 2016, which sounds about right.  The addition of the $100 million of proceeds from the convertible bond will extend that time line, but it is also likely additional cash will be expended on the commercialization of Horizant and additional clinical trials for XP23829. 

The convertible bond is the only debt for now, but it is likely XenoPort will be back for more.           

Pro Forma Summary Statistics:

Cash: $213 million

Total Debt: $100 million

LTM EBITDA: $(49) million

LTM Cash Flow: $(62) million

Total Market Cap: $545 million

Debt/EBITDA:  NA