Arbor Pharmaceuticals LLC, of Atlanta, has moved to buy Xenoport Inc. for $467 million in cash, adding the restless leg and postherpetic neuralgia drug Horizant (gabapentin enacarbil) to its neurology portfolio.

The deal also presumably includes up to $440 million in potential payments from Dr. Reddy's Laboratories Ltd., should the psoriasis drug it licensed from Xenoport, XP23829, meet certain regulatory and commercial milestones under a deal that the pair struck in March after Xenoport decided to focus its energies exclusively on Horizant. (See BioWorld Today, March 29, 2016.)

Horizant is also being tested under an agreement with the National Institute on Alcohol Abuse and Alcoholism as a potential therapy for alcohol use disorder (AUD). An ongoing study in AUD expected to yield data during the first half of 2017. The drug is a sustained-release, once-daily oral tablet formulation of the GABA modulator and voltage-activated calcium channel subunit alpha-2 delta-3 subunit modulator.

Privately held Arbor's current marketed neurology drug lineup includes the attention-deficit hyperactivity disorder (ADHD) drug Zenzedi (dextroamphetamine sulfate) and another ADHD drug, Evekeo, an amphetamine sulfate that combines dextroamphetamine and levoamphetamine. It is also advancing AR19 and AR20, two drugs for undisclosed pediatric mental disorders.

Arbor is seeking to buy all outstanding shares of Xenoport for $7.03 per share (NASDAQ:XNPT), a 60 percent premium to Xenoport's closing price on Friday, May 20.

Xenoport shares rose 56.4 percent on the news, closing at $6.88 on Monday. RBC Capital Markets analyst Michael Yee called the offer "excellent," considering that Xenoport's shares traded at $3.45 per share just seven to eight months ago. The value of the offer, a little more than four times greater than Horizant's projected peak sales, places it in line with other biotech and specialty pharma deals during the last three years, he said.

Yee noted earlier that though Xenoport hadn't attracted much Wall Street attention given its relatively small size, the company would make "an interesting specialty pharma acquisition, given the potential leverage and growth [that] Horizant could drive" for another firm. In a research report, he said RBC "continue[d] to believe that Horizant would be better leveraged (and far more profitable) under a different, larger, neurology sales force at a bigger spec-pharma company."

Despite a rough launch, during which manufacturing delays at former Xenoport partner Glaxosmithkline plc's contract manufacturer resulted in insufficient supplies of the drug to meet demand, Horizant sales have risen. The drug generated about $22 million in 2013 before rising generating revenue of about $43 million in 2014. Horizant sales fell to $39 million in 2015, but are projected to hit about $62 million this year.

"Given limited resources, Xenoport has done a very good job to date in driving Horizant sales and demonstrating the drug's promotional sensitivity following GSK's original 'botched' initial launch five years ago," wrote Jefferies analyst David Steinberg. The deal could even signal a potential acceleration in small/mid-sized transactions in specialty pharma in which "'cash rich/product poor' acquirers seek out certain higher quality specialty pharma assets," he said, suggesting that Akorn Inc., Pacira Pharmaceuticals Inc., Revance Therapeutics Inc. and Supernus Pharmaceuticals Inc. were all potentially attractive near term targets.

Xenoport CEO Vincent Angotti said his company evaluated "many potential options to maximize the value for stockholders," and that he viewed the Arbor deal as "a great outcome" for the firm. Xenoport did not respond to a query from BioWorld Today.

"We believe that Xenoport's lead product, Horizant, offers patients and physicians a valuable treatment option for moderate to severe primary restless legs syndrome and postherpetic neuralgia," said Ed Schutter, president and CEO of Arbor.

Unsurprisingly, at least a couple of law firms are already seeking to take issue with that assessment, seeking clients who might believe Arbor is underpaying for Xenoport shares, among them Levi & Korsinsky LLP.

Boards of both companies unanimously supported the merger, which is expected to close during the third quarter, pending a Hart-Scott-Rodino review. In the event that the deal is terminated due to a change of heart at Xenoport, the Redwood City, Calif-based company could be on the hook to pay Arbor a $16.5 million termination fee. Alternatively, Arbor could be obligated, owing Xenoport a $25 million reverse termination fee under certain circumstances.

Arbor, which is partially owned by private equity investor Kohlberg, Kravis, Roberts & Co., is focused on the cardiovascular, hospital and pediatric markets. It has more than 600 employees, including a 500-person sales force. Since its founding in 2010, it has completed more than 20 acquisition, licensing, or product development transactions, covering both branded and generic products.

The company declined to speak with BioWorld Today.

Centerview Partners is serving as Xenoport's financial advisor on the deal, while Weil, Gotshal & Manges handled legal advising for the company. Alston & Bird LLP and Simpson, Thacher & Bartlett LLP acted as legal advisors to Arbor. Deutsche Bank provided debt financing to Arbor in support of the transaction.