Here's Why Xenoport's Shares Are Surging Today

By George

What: Shares of Xenoport , a biopharma specializing in developing treatments forneurological disorders, saw its share rise by as much as 36% today on heavy volume. This spike in share price coincides with Xenoport announcing that its longtime CEORonald Barrett was stepping down, its workforce would be reduced, and it plans to seek a partner to further the clinical development for its development stage assets to allow the company to focus on the commercialization of its restless legs syndrome drugHorizant.

So what: Xenoport's lead experimental candidate,XP23829, has reportedly been linked togastrointestinal side effects that cast doubt on the wisdom of pushing the drug into a costly late-stage trial. By cutting its clinical program short and reorganizing its workforce, the company should be able to drastically lower its cash burn moving forward.

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Now what: The good news is that Horizant's sales have been growing steadily in recent quarters, and the Street expects this trend to continue next year with another 58% rise in year over year sales. So with the company essentially off-loading its clinical program for the moment, it's not out of the question for Xenoport to transition into a cash flow positive operation by as early as 2017. Having said that, I'm content to watch this small-cap biopharma from the sidelines for the time being, given that any future value creation looks to be highly dependent on a single product following this reorganization.

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