Shares of XenoPort Inc. plunged 9.6 percent Thursday as investors frantically shorted the stock that had run up to more than $6 in anticipation of the PDUFA date for Horizant (gabapentin enacarbil) extended-release tablets for postherpetic neuralgia (PHN) in adults, an event that triggered a $10 million milestone payment from partner GlaxoSmithKline plc.

Horizant already is approved for restless legs syndrome (RLS), but the relationship between Santa Clara, Calif.-based XenoPort and GSK, of London, is strained by litigation related to GSK's role in promotion of the drug.

Expansion of the label for Horizant is expected to boost the franchise; however, that tension between XenoPort and GSK has created uncertainty around XenoPort's prospects.

"The future of the product in terms of Glaxo's role with promotion is kind of up in the air right now," David Ansellem, an analyst with PiperJaffray, told BioWorld Today.

XenoPort licensed worldwide rights, excluding Asian territories, to Horizant to GSK in 2007 for $75 million in cash up front, $65 million in milestones leading up to the filing of a new drug application and an additional $210 million in other development and regulatory milestones, plus as much as $290 million in sales milestones. Xenoport also is entitled to royalties on sales outside the U.S. The deal gave XenoPort a co-promotion option that would give it a net profit share. (See BioWorld Today, Feb. 9, 2007.)

XenoPort partnered with Astellas Pharma Inc., of Tokyo, for Japan and other Asian territories.

It has received about $65 million in payments to date under the collaboration with Astellas, and $120 million from GSK.

The co-promotion option gave XenoPort rights to promote GSK's Requip (ropinirole), a dopamine agonist approved for Parkinson's disease and RLS. Requip's patent expired in May 2008, and it is now available in generic form.

The roll-out of Horizant following its approval in April 2011 was less successful than expected, ringing up just $1.3 million in net sales, according to SEC filings by GSK.

Early in 2012, XenoPort provided notice of dispute and notice of breach and termination to GSK, charging that the pharma breached its contractual obligation to use commercially reasonable efforts to "maximize the sales of Horizant in an expeditious manner and achieve the sales milestones set forth in the agreement."

The partnership agreement gave XenoPort the right to terminate in the event that GSK materially breached or defaulted in the performance of its obligations.

"The question is what's going to happen," Ansellem said. "Will Glaxo ultimately redouble their efforts and promote it, or will the rights revert back to XenoPort?"

Adding a different indication to the label could help to resolve those tensions. From the beginning, Horizant has had to compete with dopamine agonists for RLS, including ropinirole and Mirapex (pramipexole, Boehringer Ingelheim GmbH).

Horizant is absorbed into the body through nutrient transport mechanisms and there is converted to gabapentin, which binds to a specific calcium channel receptor.

GSK and XenoPort demonstrated safety and efficacy of Horizant for PHN (pain due to nerve damage from varicella zoster virus) through a 12-week efficacy trial and two supportive studies in a total of 574 patients. All met their respective primary endpoints.

"We would expect that Glaxo will promote the product to a far wider physician audience (i.e. general practitioners, neurologists and pain specialists)," Ansellem said. He also noted that the dose of 600 mg twice per day for PHN was double the dose of Horizant for RLS, meaning that a monthly prescription would have a cost of $210 in PHN vs. $105 in RLS.

If Horizant and GSK stick together, the partnership ultimately could prove very lucrative. If not, prospects could still turn out well for XenoPort, as Ansellem pointed out. "The larger point here is that if Glaxo and XenoPort terminate the partnership, we believe there would be interest from other potential commercial partners."

Ansellem called the remainder of XenoPort's pipeline "intriguing." It filed an investigational new drug application for XP23829 in multiple sclerosis. That drug is a potential next-generation analogue of Biogen Idec Inc.'s BG-12. It also has Phase III data due in the fourth quarter for arbaclofen placarbil, a prodrug of the R-isomer of baclofen, in development for spasticity.

XenoPort's stock historically has been volatile, but the short sale phenomenon that contributed to its seeming paradoxical losses on a day of objective good news is not unprecedented. Arena Pharmaceuticals Inc.'s stock, for instance, was heavily shorted in April, ahead of that firm's advisory committee meeting for obesity candidate lorcaserin.

PDUFA dates provide an especially attractive opportunity for short sales, as a complete response letter can quickly provide the opportunity for a payout. The lead up to the Jan. 31, 2011, PDUFA date for Orexigen Inc.'s obesity drug Contrave (naltrexone SR/bupropion SR) was considered to be a good shorting opportunity.

Shares of XenoPort (NASDAQ:XNPT) lost 58 cents, to close at $5.49 Thursday.