Mail Stop 3-09
February 16, 2005
Ronald W. Barrett, Ph.D.
Chief Executive Officer
XenoPort, Inc.
3410 Central Expressway
Santa Clara, CA 95051
Re: Xenoport, Inc.
Registration Statement on Form S-1
File No. 333-122156
Dear Dr. Barrett:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-1
Comments Applicable to the Entire Prospectus
1. Please note that when you file a pre-effective amendment
containing pricing-related information, we may have additional
comments.
2. Please note that when you file a pre-effective amendment that
includes your price range, it must be bone fide. We interpret this
to
mean that your range may not exceed $2 if you price below $20 and
10%
if you price above $20.
3. Please provide us proofs of all graphic, visual or photographic
information you will provide in the printed prospectus prior to
its
use, for example in a preliminary prospectus. Please note we may
have comments regarding this material.
4. Please note that where we provide examples to illustrate what
we
mean by our comments, they are examples and not complete lists.
If
our comments are applicable to portions of the filing that we have
not cited as examples, please make the appropriate changes in
accordance with our comments.
Prospectus Summary, page 1
Overview, page 1
5. As you have chosen to include a summary of your strategy,
please
revise to include a discussion of the risks and obstacles you must
address in implementing this strategy in this Overview section.
Our Product Candidates, page 1
6. We note your disclosure in this section relating to clinical
studies related to your XP13512 product. These types of
disclosure
are too detailed for proper inclusion in the summary. Instead,
the
disclosure in the summary should be limited to a discussion of the
extent of testing, such as the drugs, indication(s) and current
phase
of testing. In that regard, please remove all of your disclosure
on
the results of your clinical studies from this section.
7. Please define the terms "restless legs syndrome" and "post-
herpetic neuralgia" the first time the terms are used.
8. Please provide us with an annotated copy of third party
documentation supporting your statement the following statements:
* "For the 12 months ended August 31, 2004, there were
approximately
2.3 million prescriptions written for baclofen in the United
States."
* "Approximately $10 billion is spent worldwide each year on GERD
and heartburn medications, and approximately 6% of the global
population experiences GERD symptoms."
* "The prevalence of spasticity due to multiple sclerosis, stroke
and
cerebal palsy in 2002 was approximately 5.2 million patients in
the
United States and six other major pharmaceutical markets,
respectively."
* "In 2002, more than 74 million people in the United Stats and
six
other major pharmaceutical markets, collectively, were afflicted
by
migraine, resulting in an approximately $2.9 billion commercial
market."
* "In 2000, global sales of anti-nausea drugs were approximately
$1.8
billion."
9. Please also identify the recent studies that indicated
"approximately 2% of patients visiting primary care physicians in
the
United States and four European countries suffer from RLS symptoms
severe enough to disrupt their quality of life," and that
indicated
"baclofen may also be effective in treating GERD . . . ." Please
also provide us with annotated copies of the third party
documentation supporting the statements you make here.
Risks Related to Our Business, page 3
10. Please revise this discussion so that it is in a bullet-point
format.
Risk Factors, page 7
11. We note your disclosure in the introductory paragraph of this
section where you state, "The risks described below are not the
only
ones we face. Additional risks that we currently do not know
about
or that we currently believe to be immaterial may also impair our
business." These sentences suggest that not all known risks or
uncertainties are described in this section. Please amend your
disclosure to state that all material risks are described in the
risk
factors section, and ensure that the statement is true.
"We have incurred operating losses since inception and expect to
continue to incur . . . .," page 7
12. We note the disclosure in Note 1 to the Financial Statements
that
the financial statements have been prepared assuming that the
company
will continue as a going concern. Please include as a separate
stand
alone risk factor your certified accountant`s disclosure regarding
their substantial doubt about your ability to continue as a going
concern.
13. You state that you expect to incur significant and increasing
operating expenses associated with the establishment of a North
American specialty sales force and increased manufacturing future,
as
well for your research and development programs. Here, and in
more
detail in MD&A, please further discuss and quantify the expenses
you
expect to incur. In MD&A, you should also discuss the projected
timing of establishing your North American specialty sales force
as
well as any other material expenditure. Please also indicate the
timing of your establishing your North American specialty sales
force
in the risk factor on page 18 entitled "If we are unable to
establish
sales and marketing capabilities or enter into agreements . . . ."
"We will need substantial additional funding and may be unable to
raise capital . . . .," page 8
14. We note your disclosure that you expect your existing capital
resources and net proceeds from the offering will enable you to
maintain currently planned operations through the first half of
2007.
Please indicate how long you expect your existing capital
resources
without proceeds from the offering will be sufficient to conduct
your
operations.
"We rely on third parties to conduct our clinical trials. If
these
third parties do . . . .," page 10
15. You indicate that you rely on third parties to conduct your
clinical trials. Please identify the third parties that you
substantially rely on for conducting your clinical trials. In
addition, to the extent you have any agreements with such parties,
please so indicate and describe in your Business section the
material
terms of the agreements. You should also file the agreements as
exhibits to your document.
16. In addition, if you have experienced delays or other
difficulties
due to a clinical research organization`s ability to perform,
please
describe the situation and actual or expected consequences.
"If some or all of our patents expire, are invalidated or are
unenforceable, or if . . . .," page11
17. We note your disclosure in the risk factor on page 20 under
the
subheading entitled, "Off-label sale or use of generic gabapentin
products . . . ." that the composition of matter patents relating
to
gabapentin have expired. Please provide similar disclosure in
this
risk factor.
"Use of third-party manufacturers may increase the risk that we
will
not have . . . .," page 14
18. Please indicate which of your third party manufacturers and
formulators of your products are located outside of the United
States. Please also discuss any impact such third party`s foreign
location has had on your operations in the past, if material.
"Safety issues with the parent drugs or other components of our
product . . . .," page 15
19. Please revise this risk factor to include discussion that the
FDA
may require more elaborate and expensive trials than would be
required for trials not utilizing already approved FDA drugs. In
addition, in an appropriate location in your document, provide a
discussion of the FDA`s requirements for such studies in cases
where
the active ingredients in a product have already received FDA
approval.
"We expect to depend on collaborative arrangements to complete the
..
.. .," page 17
20. Please identify any collaborators you currently have an
agreement
with to develop any of your programs in this risk factor. For
example, we note you have disclosed in your Management`s
Discussion
and Analysis section your agreement with ALZA Corporation. If
this
arrangement is material to you, please describe the material terms
of
the agreement in the Business section and also file the agreement
as
an exhibit to your registration statement.
"If we do not establish collaborations for XP13512 and XP19986, we
will have to . . . .," page 17
21. Please indicate when you expect to enter into collaborations
for
each of the products referenced in this risk factor.
"If we fail to attract and keep senior management and key
scientific
personnel, we . . . .," page 20
22. Please name the key management, clinical and scientific
personnel
you mention here.
23. If you have had problems attracting or retaining qualified
employees, please revise to describe the problems you have
experienced.
"We will need to hire additional employees in order to continue
our
clinical trials . . . .," page 21
24. To the extent known, please disclose the projected time frame
of
your hiring the additional employees
"Our stock price may be extremely volatile, and your investment in
our common . . . .," page 22
25. We note your disclosure that your operating results are likely
to
fluctuate significantly from quarter to quarter and year to year.
Please consider adding as a stand alone risk factor the risks and
consequences of this fluctuation and its effect on your financial
condition. In your discussion, please also indicate the specific
reasons you expect the fluctuations.
Management`s Discussion and Analysis, page 34
Overview, page 34
26. We note your disclosure concerning your agreement with ALZA
Corporation and that ALZA made an upfront, non-refundable cash
payment upon initiation of the collaboration and is providing
annual
research funding on a full-time equivalent employee basis. Please
revise to include the aggregate amount that you have received to
date
from ALZA and how much you may be entitled to receive in the
future
under the agreement. You should also file the agreement with ALZA
as
an exhibit to your registration statement.
27. We also note your disclosure concerning your agreement with
Pfizer. Please revise to include the aggregate amount that you
have
received to date from Pfizer and how much you may be entitled to
receive under the agreement. In addition, in your Business
section,
please describe all the material terms of this agreement,
including
all rights and obligations of both parties under the agreement and
revenue or expense sharing provisions. Please also file the
agreement as an exhibit to your registration statement.
Research and Development, page 37
28. Please expand the line item "other" in the table to provide
additional line item amounts for each category described in note 1
to
the table.
Years Ended December 31, 2003, 2002 and 2001
29. We note your disclosure on page 40 that revenues in 2001
consisted of grant revenue from the ATP grant as well $100,000
related to a feasibility agreement with a third party. Please
identify the third party and briefly indicate the purpose of the
feasibility agreement and the reasons you entered into this
agreement.
Liquidity and Capital Resources, page 42
30. We note your disclosure on page 27 under the heading "Dividend
Policy" that you are prohibited from paying dividends not solely
in
connection with your common stock by covenants contained in your
loan
agreements with GATX Ventures and Transamerica Technology. If
material, please describe the material terms of these loans in
this
section, including dates of the loan, interest rates, maturity
dates,
and the amount outstanding as of a recent date. You should also
file
the agreements as exhibits to your document.
Quantitative and Qualitative Disclosures About Market Risk, page
44
31. We note your disclosure that you contract for the conduct of
certain manufacturing activities with a contract manufacturer in
Europe. Please quantify the amount of your contracting activities
completed with this manufacturer.
Business, page 45
32. Throughout this Business section, you reference several
industry
sources and various statistics and other figures. Please provide
us
with any copies of all sources cited. Please note that copies
delivered should be marked to highlight the relevant information.
Manufacturing, page 58
33. We note the reference to several agreements in this section,
including your manufacturing services and product supply agreement
with Lonza; a supply agreement with Cardinal Health; and a supply
agreement with Heumann. Since it appears you are substantially
dependent on these agreements for the manufacture and supply of
some
of your products, please file these agreements as exhibit to your
registration statement. Please also revise to include any
termination provision, renewal provisions and purchase
commitments,
if any, for each agreement.
Management, page 65
34. Please revise this section to include the business experience
of
Paul Goddard from 2000 to present date. If he retired after his
tenure at Elan Pharmaceutical, please so state. We also note that
you
have hired Mr. Goddard as a consultant. Please revise his
business
experience to reflect this information.
Employment Agreements, page 72
35. Please briefly describe any restrictive covenants, including
the
non-disclosure and non-competition obligations contained in each
of
the employment agreements described in this section.
Certain Relationships and Related Transactions, page 82
36. In an appropriate place in the section entitled "Management,"
please provide the material terms of the consulting agreement you
have with Dr. Goddard. Please also file the agreement as an
exhibit.
Description of Capital Stock, page 88
Common Stock, page 88
37. Please state the expiration date of the options, and state
whether the expiration date may be extended and, if so, how.
Underwriting, page 75
38. Please advise us if you are planning to conduct a directed
share
offering. If you are, please provide us with any material you
intend to sell to potential purchasers such as a "friends and
family"
letter. Tell us when you intend to send them to these potential
purchasers. Tell us whether the sale will be handled by you
directly or by the underwriting syndicate. Tell us the procedures
your or the underwriter will employ in making the offering and
how
you will assure that this offer will meet the requirements of
Section
5 of the Securities Act and Rule 134. We may have further
comments.
39. Please indicate if your underwriters have arrangements with a
third party to host or access your preliminary prospectus on the
Internet. If so, identify the party and provide the address of the
website. Please also describe the material terms of the agreement
and
provide us with a copy of any written agreement. You should also
provide us with copies of all information concerning your company
or
the offering that appears on the third party web site. We may have
further comments.
40. If the lead underwriters or other members of the syndicate may
deliver a prospectus electronically or otherwise offer and/or sell
securities electronically, please tell us the procedures they will
use and how they intend to comply with the requirements of Section
5
of the Securities Act of 1933, particularly with regard to how
offers
and final confirmations will be made and how and when purchasers
will
fund their purchases. Provide us copies of all electronic
communications including the proposed web pages.
41. Also tell us and briefly disclose in the prospectus whether
you
intend to use any forms of prospectus other than print, such as
CD-
ROM-s, videos, etc. and provide all such prospectuses for our
examination. Please refer to SEC Releases No. 33-7233 and No. 33-
7289. We may have additional comments.
Notes to Financial Statements, page F-16
2. Collaboration Revenue, page F-24
42. Please disclose the amount of expenses related to
collaboration
agreements for each period presented as required by paragraph
14.b.
of FAS 68.
8. Stockholders` Deficit, page F-31
43. In order for us to fully understand the equity fair market
valuations reflected in your financial statements, please provide
an
itemized chronological schedule covering all equity instruments
issued since December 31, 2003 through the date of your response.
Please provide the following information separately for each
equity
issuance:
a) The date of the transaction,
b) The number of options granted or shares issued,
c) The exercise price or per share amount paid,
d) Management`s fair market value per share estimate and the
significant factors, assumptions, and methodologies used in
determining fair value,
e) An explanation of how the fair value of the convertible
preferred
stock and common stock relate, given the one-for-one conversion
ratio,
f) The identity of the recipient, indicating if the recipient was
a
related party,
g) Nature and terms of concurrent transactions,
h) The amount of any compensation or interest expense element,
i) Significant factors contributing to the difference between the
fair value as of the date of each grant and the estimated IPO
price;
and,
j) The valuation alternative selected and the reason management
chose
not to obtain a contemporaneous valuation by and unrelated
valuation
specialist.
Please also provide us with a chronology of events leading to the
filing of your IPO including when discussions began with potential
underwriters.
Exhibits
44. Please file your remaining exhibits, including the legal
opinion
with your next amendment or as soon as it becomes available as we
will review it prior to granting effectiveness of the registration
statement.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR under the form type label CORRESP.
Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Keira Ino at (202) 824-5488 or James
Rosenberg
(202) 942-1803 if you have questions regarding comments on the
financial statements and related matters. Please contact Song
Brandon at (202) 942-2831 or John Krug at (202) 942-2979 with any
other questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Suzanne Sawochka Hooper, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
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Ronald W. Barrett, Ph.D.
XenoPort, Inc.
February 16, 2005
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