When Biotech Layoffs Come (XNPT)
When conglomerates and consumer products lay off workers and employees, shareholders generally cheer the company for saving money and cutting costs by figuring out productivity measures that milk more output per employee. That leaves more income and ultimately brings more dividends down the road. But biotech firms are far from being thought of in the same light. These are growth stories and investors generally get more excited about expanding operations. So here comes XenoPort, Inc. (NASDAQ: XNPT) announcing on a Friday that HALF of its workers just won the pink-slip lotto ticket from the HR department. Today just officially became National Employee Morale Day at XenoPort.
XenoPort just announced a restructuring plan today that more narrowly focuses its R&D pipeline, and one that “includes an overall reduction in its workforce of approximately 50%.” The company says this will allow it to focus its resources to advance its later-stage product candidates. This comes on the heels of the February 17, 2010 FDA Complete Response Letter which effectively gave the complete response that its Horizant™ treatment for moderate to severe primary restless legs syndrome was a no-go.
XenoPort is collaborating with Astellas Pharma Inc. and GlaxoSmithKline (NYSE: GSK) to develop and commercialize XP13512, which is Horizant. Its product candidates are being studied for the potential treatment of restless legs syndrome, GERD, migraine headaches, neuropathic pain, spasticity and Parkinson’s disease.
The company called this an “unexpected setback” in the approval of Horizant. It also noted that this action is forcing it to review its operating plans.
It will now focus on later-stage development activities and more importantly will eliminate its own discovery research efforts. XenoPort claims a number of product candidates in clinical development as well as several other advanced preclinical compounds.
The company noted specifically that “maximum value will be created for our stockholders over the next several years by reducing our overall spending while focusing on helping our partners gain approval of Horizant in the U.S. and XP13512 in Japan, completing our ongoing Phase 2b trial of arbaclofen placarbil (AP) in gastroesophageal reflux disease (GERD) patients and initiating a Phase 2 clinical trial of XP21279 in patients with Parkinson’s disease.”
The projected estimates of annual cash saving reductions is approximately $15.6 million, most of which is from cuts to compensation and benefit expenses. XenoPort will incur cash expenditures of up to $4.2 million in the first half of this year and it does expect some non-cash charges as part of the action.
Traders and shareholders are also betting on “National Employee Morale Day” at the company being adverse. The stock is now down 2% at $7.72. The 52-week trading range is $6.39 to $25.42. This one effectively dropped from almost $20 to under $10.00 when the FDA determined that the best action for patients with Restless Leg Syndrome was to have less caffeine and to get more exercise.
The company still has close to $150 million in cash and short-term equivalents ($143.7 million per the company’s latest results) and its market cap is now $234 million. The most recent annual report data (on page 29) shows that XenoPort had 219 full-time employees, about 155 of which were involved in R&D.
This is usually one of those instances where the beatings will continue until morale improves.
JON C. OGG
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