XenoPort meltdown triggers collateral damage at Depomed

The FDA's decision to reject a marketing application for a new restless leg syndrome therapy from XenoPort and GlaxoSmithKline triggered a 66 percent plunge in the smaller developer's share price yesterday. But there was some significant collateral damage to size up as well.

As XenoPort's shares were in meltdown mode, Depomed stock lost about 20 percent of its value. That plunge followed a number of nervous pronouncements from analysts who were trying to calculate just what kind of message regulators were trying to send.

The FDA rejected Horizant because of preclinical signs of cancer among animals given the drug, which uses gabapentin--currently in use for serious conditions--and the regulators didn't believe that people suffering from RLS should have to face a cancer risk when taking a drug.

"If the FDA is believing extended-release gabapentin can cause pancreatic cancer, then Depomed is going to have a pretty hard time getting its drugs to market as well," Zacks Investment Research analyst Jason Napodano told Dow Jones yesterday.

Not so, says Depomed CEO Carl Pelzel, who struggled to put as much distance as possible between the FDA decision and his development programs for hot flashes and pain. XenoPort ran into trouble because its drug uses a new chemical entity. "We're using the molecule as approved, so we don't have to do any carcinogenicity studies," Pelzel told the news service. But for a number of investors in the company, the FDA's red flag was reason enough to run away and live to analyze another day.

- here's the report from Dow Jones