Activist investor says XenoPort should bag Horizant, and its CEO, too

GlaxoSmithKline ($GSK) gave up on the restless leg syndrome drug Horizant earlier this year. XenoPort ($XNPT), which developed the drug, may be next. A leading investor in the small company is agitating for big changes--namely, a new CEO and a new spending focus that would leave Horizant languishing.

As Bloomberg reports, XenoPort shareholder Clinton Group wrote the CEO, Ronald Barrett, with a series of demands: Rather than spending money to market Horizant, XenoPort should plow the funds into research on its potential treatment for multiple sclerosis and psoriasis. Oh, and by the way, XenoPort should send Barrett packing as well.

XenoPort shares dropped 27% so far this year despite the experimental drug's prospects, Clinton Group President Greg Taxin wrote. "The stock market is betting against our management team and strategy," Taxin said in the letter (as quoted by Bloomberg).

In November 2012, XenoPort and Glaxo agreed to part ways after a dispute over Glaxo's sales efforts on Horizant. The drug had been a disappointment to both companies, with just $1.3 million in sales to show for its first quarter on the market. Almost immediately, XenoPort was accusing Glaxo of dragging its feet on marketing--and GSK took a $165 million write-off on the drug.

Taxin claims that this MS drug prospect could change XenoPort's fortunes for the better. Similar to Biogen Idec's ($BIIB) brand-new and hot-selling Tecfidera, the prospective treatment, known as '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 in his letter.

Analysts aren't so sure, though. As Bloomberg points out, Tecfidera's early success is no guarantee that XenoPort's follow-up would pay off. "We believe that trials of '829 in MS will require much investment over many years' time, and be associated with uncertain commercial rewards," Cowen & Co.'s Eric Schmidt has said.

In any case, Taxin wants Barrett out. XenoPort needs a CEO "who will think like an owner," the fed-up investor wrote. Whether other shareholders agree remains to be seen.

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