10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 000-51329

XenoPort, Inc.

(Exact name of registrant as specified in its charter)

Delaware	94-3330837
(State or other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)

3410 Central Expressway, Santa Clara, California 95051
(Address of principal executive offices)           (Zip Code)

(Registrant’s telephone number, including area code) (408) 616-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                      Accelerated filer þ                     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Total number of shares of common stock outstanding as of April 13, 2007: 24,797,684.

XENOPORT, INC.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements		3
Balance Sheets as of March 31, 2007 and December 31, 2006		3
Statements of Operations for the Three Months Ended March 31, 2007 and 2006		4
Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006		5
Notes to Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk		17
Item 4. Controls and Procedures		17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		17
Item 1A. Risk Factors		17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3. Defaults Upon Senior Securities		38
Item 4. Submission of Matters to a Vote of Security Holders		38
Item 5. Other Information		38
Item 6. Exhibits		38
SIGNATURES		39
EXHIBIT 10.29
EXHIBIT 10.29.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

XENOPORT, INC.

BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2007			2006
	(In thousands)
Current assets:
Cash and cash equivalents	$	58,452		$	14,857
Short-term investments		112,984			103,997
Accounts receivable		2,523			2,796
Other current assets		2,078			1,332
Total current assets		176,037			122,982
Property and equipment, net		3,746			3,532
Restricted investments		1,720			1,699
Employee notes receivable and other assets		451			452
Total assets	$	181,954		$	128,665
Current liabilities:
Accounts payable	$	582		$	144
Accrued compensation		2,265			2,928
Accrued preclinical and clinical costs		9,808			13,430
Other accrued liabilities		1,508			1,737
Deferred revenue		61,264			2,424
Current portion of equipment financing obligations		403			500
Current portion of liability for early exercise of employee stock options		257			292
Total current liabilities		76,087			21,455
Deferred revenue		21,465			21,843
Deferred rent and other		1,638			1,696
Noncurrent portion of equipment financing obligations		121			181
Noncurrent portion of liability for early exercise of employee stock options		130			205
Commitments
Stockholders’ equity:
Common stock, $0.001 par value; 60,000 and 60,000 shares authorized; 24,645 and 24,517 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		25			24
Additional paid-in capital		290,063			287,513
Notes receivable from stockholders		(8	)		(33	)
Accumulated other comprehensive income		38			37
Accumulated deficit		(207,605	)		(204,256	)
Total stockholders’ equity		82,513			83,285
Total liabilities and stockholders’ equity	$	181,954		$	128,665

The accompanying notes are an integral part of these interim financial statements.

3

XENOPORT, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months
	Ended March 31,
	2007			2006
	(In thousands, except per
	share amounts)
Revenues:
Collaboration revenue	$	16,539		$	1,288
Total revenues		16,539			1,288
Operating expenses:
Research and development		17,089			13,746
General and administrative		4,403			3,406
Total operating expenses		21,492			17,152
Loss from operations		(4,953	)		(15,864	)
Interest income		1,657			937
Interest and other expense		(53	)		(51	)
Net loss	$	(3,349	)	$	(14,978	)
Basic and diluted net loss per share	$	(0.14	)	$	(0.77	)
Shares used to compute basic and diluted net loss per share		24,567			19,516

The accompanying notes are an integral part of these interim financial statements.

4

XENOPORT, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months
	Ended March 31,
	2007			2006
	(In thousands)
Operating activities
Net loss	$	(3,349	)	$	(14,978	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		332			441
Amortization (accretion) of investment premiums and discounts, net		(1,062	)		137
Stock-based compensation expense — employees		2,120			1,104
Stock-based compensation expense — consultants		7			87
Change in assets and liabilities:
Accounts receivable		273			(10,000	)
Other current assets		(746	)		173
Deposits and other assets		1			3
Accounts payable		438			(2,520	)
Accrued compensation		(663	)		158
Accrued preclinical and clinical costs		(3,622	)		3,102
Other accrued liabilities		(229	)		96
Deferred revenue		58,462			8,712
Deferred rent and other		(58	)		73
Net cash provided by (used in) operating activities		51,904			(13,412	)
Investing activities
Purchases of investments		(67,964	)		(4,570	)
Proceeds from maturities of investments		60,040			15,000
Change in restricted investments		(21	)		(27	)
Purchases of property and equipment		(546	)		(218	)
Net cash provided by (used in) investing activities		(8,491	)		10,185
Financing activities
Proceeds from issuance of common stock and exercise of stock options and warrants		345			102
Repurchases of common stock		(31	)		(2	)
Proceeds from repayment of promissory notes from a stockholder		25			—
Payments on capital leases and equipment financing obligations		(157	)		(178	)
Net cash provided by (used in) financing activities		182			(78	)
Net increase (decrease) in cash and cash equivalents		43,595			(3,305	)
Cash and cash equivalents at beginning of period		14,857			22,088
Cash and cash equivalents at end of period	$	58,452		$	18,783
Supplemental schedule of noncash investing and financing activities
Vesting of common stock from early exercises of stock options	$	110		$	199

The accompanying notes are an integral part of these interim financial statements.

5

XENOPORT, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

     Nature of Operations

     XenoPort, Inc. (the Company) was incorporated in the state of Delaware on May 19, 1999. The Company is a biopharmaceutical company focused on developing a portfolio of internally discovered product candidates that utilize the body’s natural nutrient transporter mechanisms to improve the therapeutic benefits of drugs. Its facilities are located in Santa Clara, California.

     In February 2007, the Company entered into an exclusive collaboration with Glaxo Group Limited (GSK) to develop and commercialize XP13512 worldwide, excluding Japan, Korea, the Philippines, Indonesia, Thailand and Taiwan (collectively referred to as the Astellas territory). See Note 2.

     Basis of Preparation

     The accompanying financial statements as of March 31, 2007 and for the three months ended March 31, 2007 and 2006 are unaudited. These unaudited financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2007 and results of operations for the three months ended March 31, 2007 and 2006 and cash flows for the three months ended March 31, 2007 and 2006. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007 or for any other interim period or any other future year. For more complete financial information, these financial statements, and the notes hereto, should be read in conjunction with the audited financial statements for the year ended December 31, 2006 included in the Company’s annual report on Form 10-K.

     Revenue Recognition

     Revenue arrangements are accounted for in accordance with the provisions of Securities and Exchange Commission, or SEC, Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, No. 00-21, Revenue Arrangements with Multiple Deliverables. A variety of factors are considered in determining the appropriate method of revenue recognition under these arrangements, such as whether the various elements can be considered separate units of accounting, whether there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings process associated with a particular element of an agreement. Specifically, the Company accounts for each of these typical elements as follows:

• Up-front, licensing-type fees. Up-front, licensing-type payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, the Company does not consider the license deliverable to be a separate unit of accounting and the revenue is deferred with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting.

• Milestones. Milestones are assessed on an individual basis and revenue recognized from these milestones when earned, as evidenced by acknowledgment from collaborators, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, (ii) the milestone represents the culmination of, or progress towards the culmination of, an earnings process and (iii) the milestone payment is non-refundable. Where separate milestones do not meet these criteria, the Company typically defaults to a performance-based model, with revenue recognition following delivery of effort as compared to an estimate of total expected effort. Milestones that are received after all substantive deliverables have occurred are considered to be bonus payments and are recognized upon receipt of the cash, assuming all of the other revenue recognition criteria are met.

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• Collaborative research payments. Generally, the payments received are based on a contractual cost per full-time equivalent employee working on the project, and recognized as the services are performed over the related funding periods for each agreement.

• Grant revenues. Grant revenues are recognized as research is performed.

• Combined units of accounting. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the longest period over which the Company remains obligated to perform services or deliver product. The specific methodology for the recognition of the revenue (e.g., straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract.

     Payments received in excess of revenues recognized are recorded as deferred revenue until such time as the revenue recognition criteria have been met.

     The Company’s collaboration agreements also include potential payments for commercial product supply and product royalties. To date, no revenues have been received from either of these sources.

     Clinical Trials

     The Company accrues and expenses the costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial sites. The Company determines the estimates through discussions with internal clinical personnel and external service providers as to progress or stage of completion of trials or services and the agreed upon fee to be paid for such services. Costs of setting up clinical trial sites for participation in the trials are expensed immediately as research and development expenses. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trial and reduced by any initial payment made to the clinical trial site when the first patient is enrolled.

     Income Tax Expense

     Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standard Board, Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim-period guidance, among other provisions.

     At the date of adoption of FIN 48, the Company had no unrecognized tax benefits and expected no significant changes in unrecognized tax benefits in the next 12 months.

     The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged to the Company in relation to the underpayment of income taxes.

2. Collaboration Revenue

     In December 2005, the Company entered into a license agreement with Astellas Pharma Inc. for exclusive rights in Japan and five other Asian countries to develop and commercialize XP13512, the Company’s lead product candidate. Under the terms of the agreement, Astellas was granted exclusive rights to develop and commercialize XP13512 in the Astellas territory. The Company received an initial license payment of $25,000,000 in December 2005, which has been deferred and is being recognized on a straight-line basis over a period that approximates the expected patent life of XP13512. In April 2006, the Company received a milestone payment of $10,000,000 upon initiation of the Company’s first Phase 3 clinical trial of XP13512 in restless leg syndrome, or RLS, patients in the United States that is being recognized on a straight-line basis over the period of the Phase 3 clinical trial. In addition, the Company is eligible to receive potential clinical and regulatory milestone payments totaling up to $50,000,000 and is entitled to receive percentage-based royalties on any sales of XP13512 in the Astellas territory. The agreement also requires Astellas to source all product from the Company under a specified supply agreement. In the three months ended March 31, 2007, the Company recognized revenue of $1,288,000, representing amortization of the up-front license payment and first milestone payment under this arrangement. At March 31, 2007, $22,980,000 of revenue was deferred under this arrangement, of which $1,515,000 was classified within current liabilities and the remaining $21,465,000 was recorded as a noncurrent liability.

7

     In February 2007, the Company entered into an exclusive collaboration with GSK to develop and commercialize XP13512 worldwide, excluding the Astellas territory. In March 2007, GSK made an up-front, non-refundable license payment of $75,000,000. In addition, GSK has agreed to make additional payments of up to $275,000,000 upon the achievement of pre-commercialization milestones and up to $290,000,000 upon the achievement of specified sales levels. Under the terms of the agreement, GSK will also be responsible for all future development costs, with the exception of specified development costs that the Company will assume in connection with the development of XP13512 for RLS in the United States. The Company is entitled to receive royalties based upon a percentage of sales of XP13512 in the GSK territory for a specified period of time, unless the Company elects the option to co-promote XP13512 in the United States. In the event that the co-promotion option is elected for XP13512, the Company would share marketing and commercialization costs and would be entitled to a share of operating profits from sales of XP13512 in the United States for so long as XP13512 is sold, as well as payments on details the Company performs in the United States on Requip CR and Requip XL 24-Hour, GSK’s development-stage product candidates for RLS and Parkinson’s disease, respectively. Subject to FDA approval of the new drug application, or NDA, for XP13512, the Company would co-promote XP13512 in the United States to those same prescribers. The Company has concluded that the up-front license payment does not have value to GSK on a stand-alone basis without the benefit of the specified development activities that the Company will perform in connection with XP13512 and that $65,000,000 of milestones payable for clinical trial and pre-clinical activities were either not sufficiently substantive or not sufficiently at risk to be accounted for using the ‘when-earned’ model and, accordingly, these milestones and the up-front payment were combined into a separate unit of accounting that is being recognized over the best estimate of the development period to commercialization of the product during which time delivery of substantially all of the efforts required for the completion of the Company’s contractual responsibilities under the GSK agreement is expected to occur. In the three months ended March 31, 2007, the Company recognized revenue of $15,251,000 under this agreement. At March 31, 2007, $59,749,000 of revenue was deferred under this agreement and was classified within current liabilities.

3. Net Loss Per Share

     Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period less the weighted-average unvested common shares subject to repurchase, without consideration for potential common shares. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period less the weighted-average unvested common shares subject to repurchase and dilutive potential common shares for the period determined using the treasury-stock method. For purposes of this calculation, preferred stock, options to purchase stock and warrants are considered to be potential common shares and are only included in the calculation of diluted loss per share when their effect is dilutive.

	Three Months
	Ended March 31,
	2007			2006
	(in thousands)
Numerator:
Net loss	$	(3,349	)	$	(14,978	)
Denominator:
Weighted-average common shares outstanding		24,733			19,870
Less: Weighted-average unvested common shares subject to repurchase		(166	)		(354	)
Denominator for basic and diluted net loss per share		24,567			19,516
Basic and diluted net loss per share	$	(0.14	)	$	(0.77	)
Historical outstanding dilutive securities not included in diluted net loss per share calculation
Restricted stock units and options to purchase common stock		2,810			2,031
Warrants outstanding		33			39
		2,843			2,070

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4. Comprehensive Loss

     The Company displays comprehensive loss and its components as part of the annual statement of stockholders’ equity. Comprehensive loss is comprised of net loss and unrealized gains and losses on available-for-sale securities. Total comprehensive loss was as follows:

	Three Months
	Ended March 31,
	2007			2006
	(in thousands)
Net loss		(3,349	)		(14,978	)
Change in unrealized gain (loss) on available-for-sale securities		1			13
	$	(3,348	)	$	(14,965	)

5. Cash and Cash Equivalents, Short-Term Investments and Restricted Investments

     The following are summaries of cash and cash equivalents, short-term investments and restricted investments (in thousands):

			Gross
			Unrealized
			Gains		Estimated
	Cost		(Losses)		Fair Value
As of March 31, 2007:
Cash	$	1,082	$	—	$	1,082
Money market funds		52,122		—		52,122
Corporate debt securities		118,194		38		118,232
Certificate of deposit		1,720		—		1,720
	$	173,118	$	38	$	173,156
Reported as:
Cash and cash equivalents					$	58,452
Short-term investments						112,984
Restricted investments						1,720
					$	173,156

			Gross
			Unrealized
			Gains		Estimated
	Cost		(Losses)		Fair Value
As of December 31, 2006:
Cash	$	3,048	$	—	$	3,048
Money market funds		11,809		—		11,809
Corporate debt securities		103,960		37		103,997
Certificate of deposit		1,699		—		1,699
	$	120,516	$	37	$	120,553
Reported as:
Cash and cash equivalents					$	14,857
Short-term investments						103,997
Restricted investments						1,699
					$	120,553

     At March 31, 2007 and December 31, 2006, the contractual maturities of investments held were less than one year. There were no gross realized gains or losses from sales or maturities of securities in the periods presented.

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6. Stock-Based Compensation

     Details of the Company’s non-cash, stock-based compensation are as follows:

	Three Months
	Ended March 31
	2007		2006
	(in thousands)
Research and development	$	1,269	$	574
General and administrative		851		530
	$	2,120	$	1,104

     In January 2007, the Company’s board of directors approved the use of grants of restricted stock units to employees under the terms of the 2005 Equity Incentive Plan (2005 Plan) as part of the Company’s long-term incentive compensation program. Restricted stock units have no exercise price, are valued using the closing market price on the date of grant and vest as determined by the board of directors, typically in annual tranches over a three-year period at the rate of 25% at the end of each of the first and second years and 50% at the end of the third year. Restricted stock units granted under the 2005 Plan expire no more than ten years after the date of grant.

     During the three months ended March 31, 2007, the Company granted restricted stock units and options to purchase common stock covering 765,165 shares that had a total fair value of $11,827,000 that will be recognized over the weighted average-period of 3.7 years.

7. Subsequent Events

     In April 2007, the Company satisfied the criteria to receive $10,000,000 and $5,000,000 in milestone payments under the GSK and Astellas agreements, respectively, and expects to receive these milestone payments in May 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

     We are a biopharmaceutical company focused on developing a portfolio of internally discovered product candidates that utilize the body’s natural nutrient transporter mechanisms to improve the therapeutic benefits of drugs. Our most advanced product candidate is currently being evaluated in a Phase 3 clinical program for the treatment of restless legs syndrome, or RLS. This product candidate has also successfully completed a Phase 2a clinical trial for the management of post-herpetic neuralgia, or PHN. Our second product candidate has generated positive data in a Phase 2a clinical trial for reducing the number of reflux episodes in patients with gastroesophageal reflux disease, or GERD. Our current portfolio of proprietary product candidates includes the following:

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• XP13512 for RLS. XP13512 is a Transported Prodrug of gabapentin. XP13512 is currently being evaluated in a Phase 3 clinical program for the treatment of RLS. RLS is characterized by an irresistible urge to move one’s legs, usually accompanied by unpleasant sensations or pain in the legs. On April 25, 2007, we announced top-line results from a Phase 3 clinical trial of XP13512 for the treatment of symptoms of primary RLS. XP13512 demonstrated statistically significant improvements compared to placebo on both of the co-primary endpoints of the trial and was well tolerated.

• XP13512 for Neuropathic Pain, Including PHN. We have also shown in a Phase 2a clinical trial that XP13512 is effective for the management of PHN, a chronic type of neuropathic pain that can follow the resolution of shingles.

• XP19986 for GERD and Spasticity. XP19986 is a Transported Prodrug of R-baclofen that is in development for the treatment of GERD, which is a digestive system disorder caused primarily by inappropriate relaxations of the lower esophageal sphincter, which is a combination of muscles that controls the junction between the esophagus and the stomach. GERD is characterized by the frequent, undesirable passage of stomach contents into the esophagus that results in discomfort and potential damage to the lining of the esophagus. We have successfully completed a Phase 2a clinical trial indicating that single doses of XP19986 were well tolerated and produced statistically significant reductions in the number of reflux episodes in patients with GERD. XP19986 is also a potential treatment for the symptoms of spasticity.

• XP21279 for Parkinson’s Disease. XP21279 is a Transported Prodrug of levodopa, or L-Dopa, that is in preclinical development for the treatment of Parkinson’s disease. We plan to file an investigational new drug application, or IND, for XP21279 in the fourth quarter of 2007.

• XP20925 for Migraine and Chemotherapy-Induced Nausea and Vomiting. XP20925 is a Transported Prodrug of propofol that is in preclinical development for the treatment of migraine and chemotherapy-induced nausea and vomiting. We plan to commence preclinical development activities to support the filing in 2008 of an IND for XP20925.

     We were incorporated in May 1999 and commenced active operations in August 1999. To date, we have not generated any product revenues. We have funded our operations primarily through the sale of equity securities, non-equity payments from collaborative partners, capital lease financings, interest earned on investments and government grants. We have incurred net losses since inception and expect to incur losses for the next several years as we expand our research and development activities and move our product candidates into later stages of development. We expect our research and development expenses to continue to increase as we expand our development programs, and, subject to regulatory approval of any of our product candidates, we expect to incur significant expenses associated with the establishment of a North American specialty sales force. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses if we establish a North American specialty sales force. As of March 31, 2007, we had an accumulated deficit of approximately $207.6 million.

     From our inception in 1999 through 2001, our principal activities were focused on identifying and characterizing natural nutrient transporter mechanisms and developing the technology necessary to utilize them for the active transport of drugs. Beginning in 2002, our activities expanded to include the preclinical and clinical development of internally discovered product candidates based on this proprietary technology. In addition to our ongoing research program, the process of carrying out the development of our product candidates to later stages of development will require significant additional research and development expenditures, including preclinical testing, clinical trials, manufacturing development efforts and regulatory activities. We outsource a substantial portion of our preclinical studies, clinical trials and manufacturing activities to third parties to maximize efficiency and minimize our internal overhead.

     In December 2005, we entered into an agreement in which we licensed to Astellas Pharma Inc. exclusive rights to develop and commercialize XP13512 in Japan, Korea, the Philippines, Indonesia, Thailand and Taiwan (collectively referred to as the Astellas territory). We received an initial license payment of $25.0 million. The terms of the agreement also specify clinical and regulatory milestone payments totaling up to a maximum of $60.0 million, including milestone payments of $10.0 million upon initiation of our first Phase 3 clinical trial of XP13512 in RLS patients in the United States, which we received in April 2006, and $5.0 million at the completion of our first Phase 3 clinical trial of XP13512 in RLS patients in the United States, which we expect to receive in May 2007. We will receive royalties on any sales of XP13512 in the Astellas territory at a royalty rate in the mid-teens on a percentage basis. As of March 31, 2007, we had recognized an aggregate of $12.0 million of revenue pursuant to this agreement.

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     In February 2007, we announced an exclusive collaboration with Glaxo Group Limited, or GSK, to develop and commercialize XP13512 worldwide, excluding the Astellas territory. GSK made an up-front, non-refundable license payment to us of $75.0 million that we received in March 2007, and GSK has agreed to make additional payments of up to $275.0 million upon the achievement of pre-commercialization milestones and up to $290.0 million upon the achievement of specified sales levels. Under the terms of the agreement, GSK is responsible for all future development costs, with the exception of specified development costs that we assumed in connection with the development of XP13512 for RLS in the United States. We are entitled to receive royalties based upon a percentage of sales of XP13512 in the GSK territory for a specified period of time, unless we elect the option to co-promote XP13512 in the United States. In the event that we elect the co-promotion option for XP13512, we would share marketing and commercialization costs and would be entitled to a share of operating profits from sales of XP13512 in the United States for so long as XP13512 is sold, as well as payments on details we perform in the United States on Requip CR and Requip XL 24-Hour, GSK’s development-stage product candidates for RLS and Parkinson’s disease, respectively. Subject to FDA approval of the new drug application, or NDA, for XP13512, we would co-promote XP13512 in the United States to those same prescribers. As of March 31, 2007, we had recognized an aggregate of $15.3 million of revenue pursuant to this agreement. In April 2007, we satisfied the criteria to receive a $10.0 million milestone payment under this agreement, and we expect to receive this milestone payment in May 2007.

Critical Accounting Policies and Significant Judgments and Estimates

     Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition and clinical development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and significant judgments and estimates are detailed in our annual report on Form 10-K with the exception of the following revenue recognition policy which has been updated subsequent to the initiation of our collaboration with GSK and additions to our stock-based compensation policy which has been updated to reflect our recent grants of restricted stock units.

Revenue Recognition

     We have entered into collaboration agreements with Astellas, ALZA Corporation, GSK and Pfizer Inc, each of which contains multiple elements. We account for these agreements in accordance with the provisions of Securities and Exchange Commission, or SEC, Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, superceded by SAB No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, No. 00-21, Revenue Arrangements with Multiple Deliverables. We considered a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as whether the various elements can be considered separate units of accounting, whether there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings process associated with a particular element of an agreement. Specifically, we account for each of these typical elements as follows:

• Up-front, licensing-type fees. To date, these types of fees have been classified within the collaboration agreements as license fees, access fees, rights fees and initial licensing fees, and each of them was non-refundable and payable in connection with the execution of the contract. Up-front, licensing-type payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, we do not consider the license deliverable to be a separate unit of accounting and we defer the revenue with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting.

• Milestones. We assess milestones on an individual basis and recognize revenue from these milestones when earned, as evidenced by acknowledgment from our collaborator, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, (ii) the milestone represents the culmination of, or progress towards the culmination of, an earnings process and (iii) the milestone payment is non-refundable. Where separate milestones do not meet these criteria, we typically default to a performance-based model, with revenue recognition following delivery of effort as compared to an estimate of total expected effort. Milestones that are received after all substantive deliverables have occurred are considered to be bonus payments and are recognized upon receipt of the cash, assuming all of the other revenue recognition criteria are met.

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• Collaborative research payments. Generally, the payments received are based on a contractual cost per full-time equivalent employee working on the project, and we recognize revenue related to these payments as the services are performed over the related funding periods for each agreement.

• Grant revenues. Grant revenues are recognized as research is performed. Grant revenues are non-refundable.

• Combined units of accounting. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the longest period over which we remain obligated to perform services or deliver product. The specific methodology for the recognition of the revenue (e.g., straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract.

     Our collaboration agreements also include potential payments for commercial product supply and product royalties. To date, we have not received revenue from either of these sources.

Stock-Based Compensation

     Restricted stock units are measured at the fair value of the common stock on the date of grant and expensed over the period of vesting using the straight-line attribution approach.

     Our accounting policies related to stock options and stock-based compensation arrangements to employees and non-employees has not changed from those detailed in our most recent annual report on Form 10-K.

Results of Operations

Three Months Ended March 31, 2007 and 2006

     Revenues

     Our revenues consisted of amounts earned from our collaborations with Astellas and GSK.

	Three Months
	Ended
	March 31,				Change
	2007		2006		$		%
	(in thousands, except percentages)
Revenues	$	16,539	$	1,288	$	15,251		1,184	%

     The increase in revenues of $15.3 million for the three months ended March 31, 2007 compared to the same period in 2006 was the result of revenues recognized under our GSK agreement that was executed in February 2007.

     We expect revenues to fluctuate during the remainder of 2007 and beyond primarily depending upon our progress against the deliverables specified in the terms of our collaboration with GSK, the timing of milestone-related activities under our Astellas collaboration and the extent to which we enter into new collaborative agreements.

     Research and Development Expenses

     Research and development expenses consist of costs associated with our research activities and drug discovery efforts, as well as costs associated with conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings. Of the total research and development expenses for the three months ended March 31, 2007 and 2006, the allocation of costs associated with research and preclinical and clinical development activities was as follows:

	Three Months
	Ended
	March 31,				Change
	2007		2006		$		%
	(in thousands, except percentages)
Research and preclinical	$	4,353	$	4,181	$	172		4	%
Clinical development		12,736		9,565		3,171		33	%
Total research and development	$	17,089	$	13,746	$	3,343		24	%

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     The increase in research and development expenses in the three months ended March 31, 2007 compared to the same period in 2006 was primarily due to the following factors:

• XP13512 clinical trial costs increased by $3.8 million, partially offset by a $2.0 million decrease in manufacturing costs;

• XP19986 clinical trial costs decreased by $0.3 million and manufacturing costs decreased by $0.2 million, due to the completion of Phase 2 clinical trials; and

• personnel costs increased by $1.5 million and consulting costs increased by $0.4 million.

     We expect that research and development expenses will increase in the future due to increased clinical development costs primarily relating to our XP13512 and XP19986 programs. The timing and amount of these expenses will primarily depend upon the costs associated with our Phase 3 clinical program in RLS for XP13512 and the outcome of future clinical trials for XP19986, as well as the related expansion of our research and development organization, regulatory requirements, advancement of our preclinical programs and product candidate manufacturing costs.

     General and Administrative Expenses

     General and administrative expenses consist principally of salaries and other related costs for personnel in executive, finance, accounting, business development, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent-related costs and professional fees for legal, consulting and accounting services.

	Three Months
	Ended
	March 31,				Change
	20067		2006		$		%
	(in thousands, except percentages)
General and administrative	$	4,403	$	3,406	$	997		29	%

     The increase in general and administrative expenses in the three months ended March 31, 2007 compared to the same period in 2006 was primarily due to increased personnel costs of $0.4 million, marketing fees of $0.2 million and office-related expenses of $0.2 million.

     We expect that general and administrative expenses will increase in the future due to increased personnel, expanded infrastructure and increased consulting and legal services.

     Interest Income and Interest Expense

     Interest income consists of interest earned on our cash and cash equivalents and short-term investments.

	Three Months
	Ended
	March 31,				Change
	2007		2006		$		%
	(in thousands, except percentages)
Interest income	$	1,657	$	937	$	720		77	%
Interest and other expense	$	53	$	51	$	2		4	%

     The increase in interest income in the three months ended March 31, 2007 compared to the same period in 2006 was due primarily to higher average balances due to funds received from our follow-on offering in June 2006 and the initial license payment from GSK in March 2007 and higher average interest rates in 2007.

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Financial Condition, Liquidity and Capital Resources

	As of		As of
	March		December
	31,		31,
	2007		2006
	(in thousands)
Cash and cash equivalents and short-term investments	$	171,436	$	118,854
Working capital		99,950		101,527
Restricted investments		1,720		1,699
Current portions of equipment financing and capital lease obligations		403		500
Noncurrent portions of equipment financing and capital lease obligations		121		181

	Three Months
	Ended
	March 31,
	2007			2006
	(in thousands)
Cash provided by (used in):
Operating activities	$	51,904		$	(13,412	)
Investing activities		(8,491	)		10,185
Financing activities		182			(78	)
Capital expenditures (included in investing activities above)		(546	)		(218	)

     Due to our significant research and development expenditures and the lack of regulatory agency approvals to sell any products, we have not been profitable and have generated operating losses since we incorporated in 1999. As such, we have funded our operations primarily through sales of our preferred stock and through our public offerings. As of March 31, 2007, we had derived aggregate net proceeds of $151.5 million from sales of our preferred stock, $46.3 million from our initial public offering in 2005 and $73.8 million from our follow-on public offering in 2006. We have received additional funding from non-equity payments from collaborative partners, capital lease financings, interest earned on investments and government grants, each as described more fully below. At March 31, 2007, we had available cash and cash equivalents and short-term investments of $171.4 million. Our cash and investment balances are held in a variety of interest-bearing instruments, including obligations of corporate debt securities and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk.

     Net cash provided by (used in) operating activities was $51.9 million and $(13.4) million in the three months ended March 31, 2007 and 2006, respectively. The net cash provided by operating activities in the three months ended March 31, 2007 primarily reflected our net loss, offset by an increase in deferred revenue in connection with our February 2007 agreement with GSK. The net cash used in operating activities in the three months ended March 31, 2006 primarily reflected our net loss, offset in part by depreciation, non-cash stock-based compensation and non-cash changes in operating assets and liabilities.

     Net cash provided by (used in) investing activities was $(8.5) million and $10.2 million in the three months ended March 31, 2007 and 2006, respectively. Cash used in investing activities for the three months ended March 31, 2007 was primarily related to the purchases of investments, offset by proceeds from maturities of investments. Cash provided by investing activities for the three months ended March 31, 2006 was primarily related to the proceeds from maturities of investments, offset by purchases of investments and, to a lesser extent, purchases of property and equipment.

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     Net cash provided by (used in) financing activities was $0.2 million and $(0.1) million in the three months ended March 31, 2007 and 2006, respectively. For the three months ended March 31, 2007, cash was primarily provided by proceeds from stock option exercises, offset by principal payments on capital leases. For the three months ended March 31, 2006, cash was primarily used in principal payments on capital leases, offset by proceeds from stock option exercises.

     We believe that our existing capital resources and expected milestone payments, together with interest thereon, will be sufficient to meet our projected operating requirements into the third quarter of 2009. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in “Risk Factors.” Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, including:

• the scope, rate of progress, results and cost of our preclinical testing, clinical trials and other research and development activities;

• the cost of manufacturing clinical and establishing commercial supplies of our product candidates and any products that we may develop;

• the timing of any milestone payments under our collaborative arrangements;

• the cost, timing and outcomes of regulatory approvals;

• the number and characteristics of product candidates that we pursue;

• the cost and timing of establishing sales, marketing and distribution capabilities;

• the terms and timing of any other collaborative, licensing and other arrangements that we may establish;

• the timing, receipt and amount of sales or royalties, if any, from our potential products;

• the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

• the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

     If we need to raise additional money to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our research and development programs. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources. To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. To the extent that we raise additional capital through equity financings, dilution to our stockholders would result.

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Contractual Obligations

     Our future contractual obligations at March 31, 2007 were as follows (in thousands):

	Payments Due by Period
			Less
			Than		1-3		3-5
Contractual Obligations	Total		1 Year		Years		Years
Equipment financing obligations	$	554	$	429	$	125	$	—
Operating lease obligations		19,116		3,863		8,106		7,147
Total fixed contractual obligations	$	19,670	$	4,292	$	8,231	$	7,147

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of March 31, 2007, we had cash and cash equivalents and short-term investments of $171.4 million consisting of cash and highly liquid investments deposited in a highly rated financial institution in the United States. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.

     We contract for the conduct of certain manufacturing activities with a contract manufacturer in Europe. We made payments in the aggregate amount of approximately $4.5 million and zero for the three months ended March 31, 2007 and 2006, respectively, to this European contract manufacturer. We may be subject to exposure to fluctuations in foreign exchange rates in connection with these agreements. To date, the effect of the exposure to these fluctuations in foreign exchange rates has not been material, and we do not expect it to be material in the foreseeable future. We do not hedge our foreign currency exposures. We have not used derivative financial instruments for speculation or trading purposes.

Item 4. Controls and Procedures

     Evaluation of Disclosure Controls and Procedures.

     Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Securities Exchange Act) required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

     Changes in Internal Controls over Financial Reporting.

     There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

     The following risks and uncertainties may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

     We have marked with an asterisk (*) those risk factors below that reflect substantive changes from the risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2007.

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Risks Related to Our Business and Industry

     We have incurred operating losses since inception and expect to continue to incur losses for the foreseeable future. We may never achieve or sustain profitability.*

     We have a limited operating history and have incurred significant losses since our inception, including losses of approximately $3.3 million for the three months ended March 31, 2007 and $207.6 million since our inception in May 1999. We expect our research and development expenses to continue to increase as we expand our development programs and, subject to regulatory approval for any of our product candidates, we expect to incur significant expenses associated with the establishment of a North American specialty sales force. As a result, we expect to continue to incur annual losses for the foreseeable future. These losses have had, and will continue to have, an adverse effect on our stockholders’ equity.

     Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or sustain profitability. Currently, we have no products approved for commercial sale and, to date, we have not generated any product revenues. We have financed our operations primarily through the sale of equity securities, non-equity payments from collaborative partners, capital lease and equipment financings and government grants. We have devoted substantially all of our efforts to research and development, including clinical trials. If we or our collaborative partners are unable to develop and commercialize any of our product candidates, if development is delayed or if sales revenue from any product candidate that receives marketing approval is insufficient, we may never become profitable. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

     Our success depends substantially on our most advanced product candidates, which are still under development. If we or our collaborative partners are unable to bring any or all of these product candidates to market, or experience significant delays in doing so, our ability to generate product revenue and our likelihood of success will be harmed.

     Our ability to generate product revenue in the future will depend heavily on the successful development and commercialization of our product candidates. Our most advanced product candidate is currently being evaluated in a Phase 3 clinical program. Our other product candidates are either in Phase 2 clinical development or in various stages of preclinical development. Any of our product candidates could be unsuccessful if it:

• does not demonstrate acceptable safety and efficacy in preclinical studies or clinical trials or otherwise does not meet applicable regulatory standards for approval;

• does not offer therapeutic or other improvements over existing or future drugs used to treat the same conditions;

• is not capable of being produced in commercial quantities at acceptable costs; or

• is not accepted in the medical community or by third-party payors.

     We do not expect any of our current product candidates to be commercially available before 2009, if at all. If we or our collaborative partners are unable to make our product candidates commercially available, we will not generate substantial product revenue and we will not be successful. The results of our clinical trials to date do not provide assurance that acceptable efficacy or safety will be shown upon completion of future Phase 3 clinical trials.

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     If we or our partners are not able to obtain required regulatory approvals, we or our partners will not be able to commercialize our product candidates, our ability to generate revenue will be materially impaired and our business will not be successful.*

     Our product candidates and the activities associated with their development and commercialization are subject to comprehensive regulation by the U.S. Food and Drug Administration, or FDA, and other regulatory agencies in the United States and by comparable authorities in other countries. In February 2007, we announced an exclusive collaboration with Glaxo Group Limited, or GSK, to develop and commercialize XP13512 in all countries of the world other than the six countries that comprise the territory under our collaboration with Astellas Pharma Inc. Under the terms of our agreement, GSK would file the new drug application, or NDA, for restless legs syndrome, or RLS, for FDA approval, and GSK would lead the development and registration of XP13512 for all indications, including neuropathic pain, other than RLS in the United States and all indications in the remainder of GSK’s licensed territory. The inability to obtain FDA approval or approval from comparable authorities in other countries would prevent us and our collaborative partners from commercializing our product candidates in the United States or other countries. We or our collaborative partners may never receive regulatory approval for the commercial sale of any of our product candidates. Moreover, if the FDA requires that any of our product candidates be scheduled by the U.S. Drug Enforcement Agency, or DEA, we or our collaborative partners will be unable to begin commercial sale of that product until the DEA completes scheduling proceedings. If any of our product candidates is classified as a controlled substance by the DEA, we or our collaborative partners would have to register annually with the DEA and those product candidates would be subject to additional regulation. Neither we nor our collaborative partners have received regulatory approval to market any of our product candidates in any jurisdiction. We have only limited experience in preparing and filing the applications necessary to gain regulatory approvals. The process of applying for regulatory approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the product candidates involved.

     Changes in the regulatory approval policy during the development period, changes in, or the enactment of additional, regulations or statutes or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Even if the FDA or other regulatory agency approves a product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. The FDA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.

     The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that our or our collaborative partners’ data is insufficient for approval and require additional preclinical, clinical or other studies. For example, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of any of our product candidates.

     We and our collaborative partners will need to obtain regulatory approval from authorities in foreign countries to market our product candidates in those countries. Neither we nor our collaborative partners have initiated the regulatory approval process in any foreign jurisdictions. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. If we or our collaborative partners fail to obtain approvals from foreign jurisdictions, the geographic market for our product candidates would be limited.

     We depend on collaborations to complete the development and commercialization of some of our product candidates. These collaborations may place the development of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.*

     In December 2005, we entered into a collaboration with Astellas for the development and commercialization of XP13512 in Japan and five other Asian countries. In February 2007, we entered into an exclusive collaboration with GSK to develop and commercialize XP13512 worldwide, excluding the Astellas territory. We may enter into additional collaborations with third parties to develop and commercialize some of our other product candidates. Our dependence on Astellas and GSK for the development and commercialization of XP13512 subjects us to, and dependence on future collaborators for development and commercialization of additional product candidates will subject us to, a number of risks, including:

• we may not be able to control the amount and timing of resources that our collaborators may devote to the development or commercialization of product candidates or to their marketing and distribution;

• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

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• disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and resources;

• collaborators may experience financial difficulties;

• collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

• business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

• a collaborator could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

• the collaborations may be terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates.

     For example, pursuant to the terms of our agreement, GSK is responsible for all future development costs of XP13512, with the exception of specified development costs that we assumed in connection with the development of XP13512 for RLS in the United States. In addition, subject to additional positive Phase 3 clinical data, GSK is obligated to file the NDA for RLS for FDA approval, and GSK would lead the development and registration of XP13512 for all indications, including neuropathic pain, other than RLS in the United States and all indications in the remainder of GSK’s licensed territory. We cannot control the amount and timing of resources that GSK may devote to the development or commercialization of XP13512 or to its marketing and distribution. In addition, GSK could independently direct its development and marketing resources to the development or commercialization of competitive products, which could delay or impair the commercialization of XP13512 and harm our business.

     If we do not establish collaborations for XP19986 or our product candidates other than XP13512, we will have to alter our development and commercialization plans.

     Our strategy includes selectively collaborating with leading pharmaceutical and biotechnology companies to assist us in furthering development and potential commercialization of some of our product candidates, including XP19986. We intend to do so especially for indications that involve a large, primary care market that must be served by large sales and marketing organizations. We face significant competition in seeking appropriate collaborators, and these collaborations are complex and time consuming to negotiate and document. We may not be able to negotiate additional collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional collaborations because of the numerous risks and uncertainties associated with establishing additional collaborations. If we are unable to negotiate additional collaborations, we may have to curtail the development of a particular product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenues.

     We will need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts. *

     We will need to raise additional capital to fund our operations and complete the development of our product candidates. If any product candidates receive regulatory approval for commercial sale, we may need to raise additional capital to fund our commercialization efforts. Our future funding requirements will depend on many factors, including:

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• the scope, rate of progress, results and cost of our preclinical testing, clinical trials and other research and development activities;

• the cost of manufacturing clinical and establishing commercial supplies of our product candidates and any products that we may develop;

• the timing of any milestone payments under our collaborative arrangements;

• the number and characteristics of product candidates that we pursue;

• the cost, timing and outcomes of regulatory approvals;

• the cost and timing of establishing sales, marketing and distribution capabilities;

• the terms and timing of any collaborative, licensing and other arrangements that we may establish;

• the timing, receipt and amount of sales or royalties, if any, from our potential products;

• the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

• the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

     Until we can generate a sufficient amount of product revenues, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances.

     If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any debt financing or additional equity that we raise may contain terms that are not favorable to our stockholders or us. If we raise additional funds through collaboration and licensing arrangements with third parties, we may be required to relinquish some rights to our technologies or our product candidates or grant licenses on terms that are not favorable to us.

     We believe that our existing capital resources and expected milestone payments, together with interest thereon, will be sufficient to meet our projected operating requirements into the third quarter of 2009. However, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital other than potential milestones receivable under our collaborations.

     Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis, we may:

• terminate or delay clinical trials for one or more of our product candidates;

• delay our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates; or

• curtail significant drug development programs that are designed to identify new product candidates.

     If our preclinical studies do not produce successful results or our clinical trials do not demonstrate safety and efficacy in humans, we will not be able to commercialize our product candidates.

     To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate, through extensive preclinical studies and clinical trials, that the product candidate is safe and effective in humans. Preclinical and clinical testing is expensive, can take many years and has an uncertain outcome. A failure of one or more of our clinical trials could occur at any stage of testing. In addition,

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success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process, which could delay or prevent our or our collaborative partners’ ability to commercialize our product candidates, including:

• regulators or institutional review boards may not authorize us to commence a clinical trial at a prospective trial site;

• our preclinical testing or clinical trials may produce negative or inconclusive results, which may require us to conduct additional preclinical or clinical testing or to abandon projects that we expect to be promising;

• we may suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks;

• regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and

• the effects of our product candidates may not be the desired effects or may include undesirable side effects.

     As an example of an unforeseen event, after having been discharged from a Phase 1 clinical trial in which a single dose of XP13512 was administered almost two days earlier, a volunteer died of a self-inflicted gunshot wound following a domestic dispute. We do not believe that this incident was related to XP13512. However, any unforeseen event could cause us to experience significant delays in, or the termination of, clinical trials. Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which would adversely impact our financial results.

     Any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.

     To date, we have not completed all of the clinical trials required for regulatory approval of any product candidate. The commencement and completion of clinical trials for our product candidates may be delayed or terminated as a result of many factors, including:

• our inability or the inability of our collaborators or licensees to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials;

• delays in patient enrollment, which we have experienced in the past, and variability in the number and types of patients available for clinical trials;

• difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

• poor effectiveness of product candidates during clinical trials;

• unforeseen safety issues or side effects; and

• governmental or regulatory delays and changes in regulatory requirements, policy and guidelines.

     Any delay in commencing or completing clinical trials for our product candidates would delay commercialization of our product candidates and severely harm our business and financial condition. It is also possible that none of our product candidates will complete clinical trials in any of the markets in which we or our collaborators intend to sell those product candidates. Accordingly, we or our collaborators would not receive the regulatory approvals needed to market our product candidates, which would severely harm our business and financial condition.

     We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or expected, we may not be able to obtain regulatory approval for, or commercialize, our product candidates. *

     We do not have the ability to independently conduct clinical trials for our product candidates, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators, collaborative partners and contract laboratories, to conduct

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our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, with the exception of XP13512 outside the United States for RLS and all other indications around the world, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. For example, we need to prepare, and ensure our compliance with, various procedures required under good clinical practices, even though third-party contract research organizations have prepared and are complying with their own, comparable procedures. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our product candidates. For example, one of our third-party contract research organizations was acquired by another company, and if such acquisition delays or prevents them from successfully carrying out their contractual duties to us, there could be a delay in commencing or completing clinical trials for our product candidates that could delay commercialization of our product candidates.

     If some or all of our patents expire, are invalidated or are unenforceable, or if some or all of our patent applications do not yield issued patents or yield patents with narrow claims, competitors may develop competing products using our intellectual property and our business will suffer.*

     Our success will depend in part on our ability to obtain and maintain patent and trade secret protection for our technologies and product candidates both in the United States and other countries. We cannot guarantee that any patents will issue from any of our pending or future patent applications. Alternatively, a third party may successfully circumvent our patents. Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes.

     The degree of future protection for our proprietary technologies and product candidates is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

• we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

• we might not have been the first to file patent applications for these inventions;

• others may independently develop similar or alternative technologies or duplicate any of our technologies;

• it is possible that none of our pending patent applications will result in issued patents;

• any patents issued to us or our collaborators may not provide a basis for commercially viable products or may be challenged by third parties; or

• the patents of others may have an adverse effect on our ability to do business.

     Even if valid and enforceable patents cover our product candidates and technologies, the patents will provide protection only for a limited amount of time.

     Our and our collaborators’ ability to obtain patents is highly uncertain because, to date, some legal principles remain unresolved, there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States and the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues. Furthermore, the policies governing biotechnology patents outside the United States are even more uncertain. Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

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     Even if patents are issued regarding our product candidates or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid and/or unenforceable. Patents also may not protect our product candidates if competitors devise ways of making these or similar product candidates without legally infringing our patents. The Federal Food, Drug and Cosmetic Act and FDA regulations and policies provide incentives to manufacturers to challenge patent validity and these same types of incentives encourage manufacturers to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor.

     As of April 15, 2007, we held 20 U.S. patents and had 89 patent applications pending before the U.S. Patent and Trademark Office, or PTO. For some of our inventions, corresponding non-U.S. patent protection is pending. Of the 20 U.S. patents that we hold, 15 patents are compound- and composition-related, having expiration dates from 2021 to 2025; one patent is synthesis-method related, having an expiration date in 2022; one patent is proteomics methodology-related having an expiration date in 2022; and three patents are screening methodology-related, having expiration dates from 2022 to 2023. Subject to possible patent term extension, the entitlement for which and the term of which we cannot predict, patent protection in the United States covering XP13512, our product candidate that is a Transported Prodrug of gabapentin, will expire no earlier than 2023. We believe that in all countries in which we hold or have licensed rights to patents or patent applications related to XP13512, the composition-of-matter patents relating to gabapentin have expired. For XP19986, our product candidate that is a Transported Prodrug of R-baclofen, one U.S. patent has issued that will expire no earlier than 2025. In addition, four U.S. and 36 non-U.S. patent applications are pending. Although third parties may challenge our rights to, or the scope or validity of, our patents, to date, we have not received any communications from third parties challenging our patents or patent applications covering our product candidates.

     We also rely on trade secrets to protect our technology, especially where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

     Our research and development collaborators may have rights to publish data and other information in which we have rights. In addition, we sometimes engage individuals or entities to conduct research that may be relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. In most cases, these individuals or entities are, at the least, precluded from publicly disclosing our confidential information and are only allowed to disclose other data or information generated during the course of the research after we have been afforded an opportunity to consider whether patent and/or other proprietary protection should be sought. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our technology and other confidential information, then our ability to receive patent protection or protect our proprietary information may be jeopardized.

     Third-party claims of intellectual property infringement would require us to spend significant time and money and could prevent us from developing or commercializing our products.

     Our commercial success depends in part on not infringing the patents and proprietary rights of other parties and not breaching any licenses that we have entered into with regard to our technologies and products. Because others may have filed, and in the future are likely to file, patent applications covering products or other technologies of interest to us that are similar or identical to ours, patent applications or issued patents of others may have priority over our patent applications or issued patents. For example, we are aware of a third party patent application relating to prodrugs of gabapentin that, if it issues, if it is determined to be valid and if it is construed to cover XP13512, could affect the development and commercialization of XP13512. Additionally, we are aware of third-party patents relating to the use of baclofen in the treatment of gastroesophageal reflux disease, or GERD. If the patents are determined to be valid and construed to cover XP19986, the development and commercialization of XP19986 could be affected. With respect to the claims contained in these patent applications and patents, we believe that our activities do not infringe the patents at issue and/or that the third-party patent or patent applications are invalid. However, it is possible that a judge or jury will disagree with our conclusions regarding non-infringement and/or invalidity, and we could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits. Any legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require our collaborators or us to obtain a license to continue to manufacture or market the affected products and processes. Licenses required under any of these patents may not be available on commercially acceptable terms, if at all. Failure to

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obtain such licenses could materially and adversely affect our ability to develop, commercialize and sell our product candidates. We believe that there may continue to be significant litigation in the biotechnology and pharmaceutical industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our management and financial resources and we may not prevail in any such litigation.

     Furthermore, our commercial success will depend, in part, on our ability to continue to conduct research to identify additional product candidates in current indications of interest or opportunities in other indications. Some of these activities may involve the use of genes, gene products, screening technologies and other research tools that are covered by third-party patents. Court decisions have indicated that the exemption from patent infringement afforded by 35 U.S.C. §271(e)(1) does not encompass all research and development activities associated with product development. In some instances, we may be required to obtain licenses to such third-party patents to conduct our research and development activities, including activities that may have already occurred. It is not known whether any license required under any of these patents would be made available on commercially acceptable terms, if at all. Failure to obtain such licenses could materially and adversely affect our ability to maintain a pipeline of potential product candidates and to bring new products to market. If we are required to defend against patent suits brought by third parties relating to third-party patents that may be relevant to our research activities, or if we initiate such suits, we could incur substantial costs in litigation. Moreover, an adverse result from any legal action in which we are involved could subject us to damages and/or prevent us from conducting some of our research and development activities.

     If third parties do not manufacture our product candidates in sufficient quantities or at an acceptable cost, clinical development and commercialization of our product candidates would be delayed.*

     We presently do not have on hand sufficient quantities of our product candidates to complete clinical trials of either XP13512 or XP19986. We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates. To date, we have relied on a small number of third-party compound manufacturers and active pharmaceutical ingredient, or API, formulators for the production of clinical and commercial quantities of our product candidates. Under the terms of our collaboration with GSK, we will transition the manufacturing of XP13512 to GSK, and GSK will be solely responsible for the manufacture of XP13512 to support its development and commercialization within the licensed territories. However, we will continue to be responsible for providing Astellas both clinical and commercial supplies of XP13512. Thus, we expect to continue to rely on a small number of third-party manufacturers to meet our clinical requirements of XP13512 during the GSK transition period, to meet our clinical and commercial supply obligations to Astellas for XP13512 and to meet our preclinical and clinical requirements of our other potential products and for any related commercial needs. We do not have commercial supply agreements with any of these third parties, and our agreements with these parties are generally terminable at will by either party at any time. If, for any reason, these third parties are unable or unwilling to perform under our agreements or enter into new agreements, we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them. Any inability to acquire sufficient quantities of our product candidates in a timely manner from these third parties could delay clinical trials and prevent us or our partners from developing and commercializing our product candidates in a cost-effective manner or on a timely basis. We purchase substantial amounts of gabapentin, which is used to make XP13512, from Teva Pharmaceutical Industries, Ltd. pursuant to purchase orders issued from time to time. Teva’s sale of gabapentin is the subject of ongoing litigation brought by Pfizer Inc alleging infringement of a patent held by Pfizer. In July 2006, the Federal District Court ruled in favor of the generic gabapentin makers, including Teva, and Pfizer has appealed this ruling. In the event that Teva decides not to sell gabapentin to us, or decides to sell gabapentin to us at a price that is not commercially attractive, or, as a result of this litigation, ceases producing gabapentin, we would not be able to manufacture XP13512 until a qualified alternative supplier is identified. This could delay the development of, and impair our or our collaborative partners’ ability to commercialize, this product candidate.

     We currently rely on Lonza Ltd. as the single source supplier of our current worldwide requirements of XP13512 API. We have agreed to purchase XP13512 API from Lonza under a manufacturing services and product supply agreement. In the event that Lonza terminates the agreement in response to a breach by us, we would not be able to manufacture the API until a qualified alternative supplier is identified. This could delay the development of, and impair the ability of us or our partners to commercialize, this product candidate. In addition, our current agreement with Lonza does not provide for the entire supply of API that we require to complete all of our planned clinical trials or for full-scale commercialization. However, the manufacturing services and product supply agreement obligates the parties to negotiate in good faith on the terms and conditions for Lonza to supply some or all of our total requirements for the commercial supply of XP13512 API. In the event that the parties cannot agree to the terms and conditions for Lonza to provide some or all of our API commercial supply needs, we would not be able to manufacture API until a qualified alternative supplier is identified, which could also delay the development of, and impair the ability of us or our partners to commercialize, this product candidate. Unless earlier terminated, this agreement expires in July 2007.

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     In addition, we currently rely on Patheon Pharmaceuticals, Inc. as our single source supplier for XP13512 formulated in sustained-release tablets for clinical trials at specified transfer prices under a quotation agreed upon by the parties that forms a part of a master services agreement. In the event that Patheon terminates the agreement under specified circumstances, we would not be able to manufacture XP13512 sustained-release tablets until a qualified alternative supplier is identified. This could delay the development of, and impair the ability of us or our partners to commercialize, XP13512.

     We currently rely on Heumann Pharma GmbH as our single source supplier of R-baclofen, the active agent used to make XP19986, under purchase orders issued from time to time. We are aware of two alternative suppliers of R-baclofen. If we were unable to qualify an alternative supplier of R-baclofen, this could delay the development of, and impair our ability to commercialize, this product candidate.

     We currently rely on Xcelience, LLC as our single source supplier for XP19986 formulated in sustained-release tablets for clinical trials at specified transfer prices under quotation agreed upon by the parties as a part of a master services agreement. In the event that Xcelience terminates the agreement under specified circumstances, we would not be able to manufacture XP19986 sustained-release tablets until a qualified alternative supplier is identified. This could delay the development of, and impair our ability to commercialize, XP19986.

     We have relied on Lonza as the single source supplier of our current worldwide requirements of XP19986 in API form through our initial Phase 2a clinical trial under a manufacturing services and product supply agreement. Our current agreement with Lonza does not provide for the entire supply of the API necessary for additional Phase 2 and Phase 3 clinical trials or for full-scale commercialization. In the event that the parties cannot agree to the terms and conditions for Lonza to provide some or all of our API clinical and commercial supply needs, we would not be able to manufacture API until a qualified alternative supplier is identified, which could also delay the development of, and impair our ability to commercialize, this product candidate.

     If we are required to obtain alternate third-party manufacturers, it could delay or prevent the clinical development and commercialization of our product candidates.

     We may not be able to maintain or renew our existing or any other third-party manufacturing arrangements on acceptable terms, if at all. If we are unable to continue relationships with Teva, Lonza or Patheon for XP13512, or Heumann, Lonza or Xcelience for XP19986, or to do so at an acceptable cost, or if these suppliers fail to meet our requirements for these product candidates for any reason, we would be required to obtain alternative suppliers. Any inability to obtain qualified alternative suppliers, including an inability to obtain, or delay in obtaining, approval of an alternative supplier from the FDA, would delay or prevent the clinical development and commercialization of these product candidates, and could impact our ability to meet our supply obligations to Astellas.

     Prior to the commencement of our Phase 3 clinical trials, the formulation of XP13512 that had been tested in humans had been produced by entities other than Patheon. We completed an additional Phase 1 clinical trial to assess the safety, tolerability and pharmacokinetics of single doses of XP13512 manufactured by Patheon. This clinical trial utilized a sustained-release formulation of XP13512 produced at a larger scale. These tablets are similar in characteristics compared to the sustained-release formulation used in previous trials. We conducted this additional Phase 1 single-dose, crossover clinical trial in 12 healthy volunteers at one site. Results from this clinical trial suggest that the new, larger-scale, sustained-release formulation of XP13512 produces blood levels of gabapentin that are similar to the sustained-release formulation used in the previous clinical trials. There can be no assurance that additional clinical trials with the larger-scale, sustained-release tablet formulation will replicate results from our earlier clinical trials. The failure to replicate these earlier clinical trials could delay our clinical development timelines.

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     Any failure or delay in developing or manufacturing, or obtaining a qualified commercial supplier of, a new sustained-release tablet formulation of XP19986 could delay the clinical development and commercialization of this product candidate.*

     Cardinal Health PTS, LLC provided our requirements of XP19986 for our Phase 1 and Phase 2a clinical trials in the form of capsules containing controlled-release beads. However, we have developed new sustained-release tablet formulations of XP19986 to replace the Cardinal Health capsules and have conducted clinical trials with these new tablet formulations. To be successful, the sustained-release tablet formulations will need to continue to demonstrate acceptable safety and efficacy, and there can be no assurance that clinical trials with the sustained-release tablet formulations will replicate results from our earlier clinical trials with the capsule formulation. The failure to replicate these earlier clinical trials would delay our clinical development timelines. We have engaged Xcelience as a third-party manufacturer for the new sustained-release tablet formulations. Any inability to obtain a qualified commercial supplier, including an inability to obtain, or delay in obtaining, approval of a supplier from the FDA, would delay or prevent the clinical development and commercialization of this product candidate. We currently ship XP19986 using refrigerated containers. We anticipate that manufacturing improvements we will make will alleviate the need to ship this product candidate for commercial sale using refrigerated containers. If we are unable to achieve these manufacturing improvements, we may incur additional expenses and delays that could impair our ability to generate product revenue.

     Use of third-party manufacturers may increase the risk that we or our partners will not have adequate supplies of our product candidates.

     Our current reliance, and our and our partners’ anticipated future reliance, on third-party manufacturers will expose us and our partners to risks that could delay or prevent the initiation or completion of clinical trials by us or our partners, the submission of applications for regulatory approvals, the approval of our products by the FDA or foreign regulatory authorities or the commercialization of our products or could result in higher costs or lost product revenues. In particular, our contract manufacturers:

• could encounter difficulties in achieving volume production, quality control and quality assurance or suffer shortages of qualified personnel, which could result in their inability to manufacture sufficient quantities of drugs to meet clinical schedules or to commercialize our product candidates;

• could terminate or choose not to renew manufacturing agreements, based on their own business priorities, at a time that is costly or inconvenient for us;

• could fail to establish and follow FDA-mandated current good manufacturing practices, or cGMPs, which are required for FDA approval of our product candidates, or fail to document their adherence to cGMPs, either of which could lead to significant delays in the availability of material for clinical study and delay or prevent marketing approval for our product candidates;

• could encounter financial difficulties that would interfere with their obligations to supply our product candidates; and

• could breach, or fail to perform as agreed under, manufacturing agreements.

     As an example, one of our third-party manufacturers previously released financial results indicating that their earnings were adversely affected due to certain circumstances at one of its manufacturing operations, which, in turn, adversely affected financial covenants of certain loan facilities. In addition, they subsequently announced that their board of directors had established a special committee and engaged financial advisors to evaluate strategic and financial alternatives for the company. If such financial difficulties interfere with their ability to satisfy their contractual obligations to supply our product candidates, there could be a delay in commencing or completing our or our collaborative partners’ clinical trials, which could also delay the development of, and impair our or our partners’ ability to commercialize, our product candidates.

     We use Patheon to manufacture XP13512 sustained-release tablets that we utilize for our clinical trials and the clinical trials of Astellas. Patheon continues to perform formulation development work to achieve the commercial image for XP13512, including color coating and brand marking for the tablets that would be sold following regulatory approval, if obtained. Patheon may not be able to manufacture this product candidate using our desired commercial image, which would delay or prevent the commercialization of XP13512 by Astellas and could impact our ability to meet our supply obligations to Astellas.

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     If we are not able to obtain adequate supplies of our product candidates, it will be more difficult to develop our product candidates and compete effectively. Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. For example, gabapentin is also marketed as generic gabapentin by Teva, one of our third-party manufacturers.

     In addition, the manufacturing facilities of Heumann, Lonza and Teva are located outside of the United States. This may give rise to difficulties in importing our product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency import inspections, incomplete or inaccurate import documentation or defective packaging.

     Safety issues with the parent drugs or other components of our product candidates, or with approved products of third parties that are similar to our product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product withdrawal.

     Discovery of previously unknown problems with an approved product may result in restrictions on its permissible uses, including withdrawal of the medicine from the market. The FDA approved gabapentin, the parent drug for our XP13512 product candidate, in 1993, and, to date, it has been used in at least 12 million patients. Baclofen, the R-isomer of which is the parent drug for our XP19986 product candidate, has been used since 1977. The FDA has not approved the R-isomer of baclofen for use in humans. Although gabapentin and baclofen have been used successfully in patients for many years, newly observed toxicities, or worsening of known toxicities, in patients receiving gabapentin or baclofen could result in increased regulatory scrutiny of XP13512 or XP19986, respectively.

     Our product candidates are engineered to be broken down by the body’s natural metabolic processes and to release the parent drug and other metabolic substances. While these breakdown products are generally regarded as safe, it is possible that there could be unexpected toxicity associated with these breakdown products that will cause either or both of XP13512 and XP19986 to be poorly tolerated by, or toxic to, humans. Any unexpected toxicity of, or suboptimal tolerance to, our Transported Prodrugs would delay or prevent commercialization of these product candidates.

     Additionally, problems with approved products marketed by third parties that utilize the same therapeutic target as the parent drug of our product candidates could adversely affect the development of our product candidates. For example, the product withdrawals of Vioxx by Merck & Co., Inc. and Bextra from Pfizer in 2005 due to safety issues has caused other drugs that have the same therapeutic target, such as Celebrex from Pfizer, to receive additional scrutiny from regulatory authorities. If either gabapentin or pregabalin, a drug from Pfizer that is marketed as Lyrica, encounters unexpected toxicity problems in humans, the FDA may delay or prevent the regulatory approval of XP13512 since it is a member of the same class of drugs and shares the same therapeutic target as gabapentin and pregabalin. In 2005, the FDA requested that all makers of epilepsy drugs, including Neurontin, analyze their clinical trial data to determine whether these drugs increase the risk of suicide in patients. Finally, if the FDA determines that a drug may present a risk of substance abuse, it can recommend to the DEA that the drug be scheduled under the Controlled Substances Act. While gabapentin is not a scheduled drug at the present time, pregabalin has been scheduled as a controlled substance. Since pregabalin is a scheduled drug, it is possible that the FDA may require additional testing of XP13512, the results of which could lead the FDA to conclude that XP13512 should be scheduled as well. Scheduled substances are subject to DEA regulations relating to manufacturing, storage, distribution and physician prescription procedures, and the DEA regulates the amount of a scheduled substance that is available for clinical trials and commercial distribution. Accordingly, any scheduling action that the FDA or DEA may take with respect to XP13512 may delay its clinical trial and approval process. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for our product candidates would delay commercialization of our product candidates and severely harm our business and financial condition.

     We may not be successful in our efforts to identify or discover additional Transported Prodrug candidates.

     An important element of our strategy is to identify, develop and commercialize Transported Prodrugs that improve upon the absorption, distribution and/or metabolism of drugs that have already received regulatory approval. Other than XP13512 and XP19986, all of our research and development programs are at a preclinical stage. Research programs to identify new product candidates require substantial technical, financial and human resources. These research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

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• the research methodology used may not be successful in identifying potential product candidates; or

• potential product candidates may, on further study, be shown to have inadequate efficacy, harmful side effects, suboptimal pharmaceutical profile or other characteristics suggesting that they are unlikely to be effective products.

     If we are unable to develop suitable product candidates through internal research programs or otherwise, we will not be able to increase our revenues in future periods, which could result in significant harm to our financial position and adversely impact our stock price.

     Our product candidates will remain subject to ongoing regulatory review, even if they receive marketing approval. If we or our collaborative partners fail to comply with continuing regulations, these approvals could be rescinded and the sale of our products could be suspended.

     Even if we or our collaborative partners receive regulatory approval to market a particular product candidate, the approval could be conditioned on conducting additional, costly, post-approval studies or could limit the indicated uses included in the labeling. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us or our collaborative partners to withdraw it from the market or impede or delay our or our collaborative partners’ ability to obtain regulatory approvals in additional countries. In addition, the manufacturer of the product and its facilities will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing approval, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the product will remain subject to extensive regulatory requirements.

     If we or our collaborative partners fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we and our partners could be subject to administrative or judicially imposed sanctions, including:

• restrictions on the products, manufacturers or manufacturing processes;

• warning letters;

• civil or criminal penalties or fines;

• injunctions;

• product seizures, detentions or import bans;

• voluntary or mandatory product recalls and publicity requirements;

• suspension or withdrawal of regulatory approvals;

• total or partial suspension of production; and

• refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications.

     Because we have a number of product candidates and are considering a variety of target indications, we may expend our limited resources to pursue a particular candidate or indication and fail to capitalize on candidates or indications that may be more profitable or for which there is a greater likelihood of success.*

     Because we have limited financial and managerial resources, we must focus on research programs and product candidates for the specific indications that we believe are the most promising. As a result, we may forego or delay pursuit of opportunities with other product candidates or other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. In addition, we may spend valuable time and managerial and financial

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resources on research programs and product candidates for specific indications that ultimately do not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in situations where it would have been more advantageous for us to retain sole rights to development and commercialization.

     The commercial success of any products that we or our partners may develop will depend upon the degree of market acceptance among physicians, patients, healthcare payors and the medical community.

     Any products that result from our product candidates may not gain market acceptance among physicians, patients, healthcare payors and the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product revenues and we may not become profitable. The degree of market acceptance of any products resulting from our product candidates will depend on a number of factors, including:

• demonstration of efficacy and safety in clinical trials;

• the prevalence and severity of any side effects;

• potential or perceived advantages over alternative treatments;

• perceptions about the relationship or similarity between our product candidates and the parent drug upon which each Transported Prodrug candidate was based;

• the timing of market entry relative to competitive treatments;

• the ability to offer product candidates for sale at competitive prices;

• relative convenience and ease of administration;

• the strength of marketing and distribution support;

• sufficient third-party coverage or reimbursement; and

• the product labeling or product insert required by the FDA or regulatory authorities in other countries.

     If we are unable to establish sales and marketing capabilities or enter into additional agreements with third parties to market and sell our product candidates, we may be unable to generate product revenues.*

     We do not have a sales and marketing organization and have no experience in the sales, marketing and distribution of pharmaceutical products. There are risks involved with establishing our own sales and marketing capabilities, as well as entering into arrangements with third parties to perform these services. Developing an internal sales force is expensive and time-consuming. On the other hand, if we enter into arrangements with third parties to perform sales, marketing and distribution services, as we have for XP13512, our product revenues will be lower than if we market and sell any products that we develop ourselves.

     Under the terms of our collaboration with GSK, we are entitled to a percentage of sales of XP13512 in the GSK territory for a specified period of time, unless we elect the option to co-promote XP13512 in the United States. In the event that we elect the co-promotion option for XP13512, we would share marketing and commercialization costs and would be entitled to a share of operating profits from sales of XP13512 in the United States, as well as payments on details we perform on Requip CR and Requip XL 24-Hour, GSK’s development-stage product candidates for RLS and Parkinson’s disease, respectively, in the United States. Subject to approval from the FDA of an NDA for XP13512, we would co-promote XP13512 in the United States to those same prescribers. If we elect the co-promotion option for XP13512, we plan to establish our own specialty sales force to sell, market and distribute our products.

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     Factors that may inhibit our efforts to commercialize our products include:

• our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

• the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

• the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

• unforeseen costs and expenses associated with creating an independent sales and marketing organization.

     Because of the numerous risks and uncertainties involved with establishing our own sales and marketing capabilities, we are unable to predict when we will establish our own sales and marketing capabilities. If we are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

     Our ability to generate revenue from any products that we may develop will depend on reimbursement and drug pricing policies and regulations.

     Many patients may be unable to pay for any products that we or our collaborative partners may develop. In the United States, many patients will rely on Medicare, Medicaid, private health insurers and other third-party payors to pay for their medical needs. Our and our partners’ ability to achieve acceptable levels of reimbursement for drug treatments by governmental authorities, private health insurers and other organizations will have an effect on our and our partners’ ability to successfully commercialize, and attract additional collaborators to invest in the development of, our product candidates. We cannot be sure that reimbursement in the United States, Europe or elsewhere will be available for any products that we or our partners may develop, and any reimbursement that may become available may be decreased or eliminated in the future. Third-party payors increasingly are challenging prices charged for medical products and services, and many third-party payors may refuse to provide reimbursement for particular drugs when an equivalent generic drug is available. Although we believe any products that may result from our product candidates will represent an improvement over the parent drugs upon which they are based and be considered unique and not subject to substitution by a generic parent drug, it is possible that a third-party payor may consider our product candidate and the generic parent drug as equivalents and only offer to reimburse patients for the generic drug. Even if we show improved efficacy or improved convenience of administration with our product candidate, pricing of the existing parent drug may limit the amount we will be able to charge for our product candidate. If reimbursement is not available or is available only at limited levels, we or our partners may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on such products.

     The trend toward managed healthcare in the United States and the changes in health insurance programs, as well as legislative proposals to reform healthcare or reduce government insurance programs, may result in lower prices for pharmaceutical products, including any products that may result from our product candidates. In addition, any future regulatory changes regarding the healthcare industry or third-party coverage and reimbursement may affect demand for any products that we may develop and could harm our sales and profitability.

     In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003, or the 2003 Medicare Act, was enacted. Under this legislation, Medicare beneficiaries are eligible to obtain a Medicare endorsed, drug-discount card from a pharmacy benefit manager, managed care organization or other private sector provider. Beginning on January 1, 2006, Medicare beneficiaries were eligible to obtain subsidized prescription drug coverage from a private sector provider. It remains difficult to predict the impact of the 2003 Medicare Act on pharmaceutical companies. Usage of pharmaceuticals may increase as the result of the expanded access to medicines afforded by the partial reimbursement under Medicare. Such potential sales increases, however, may be offset by increased pricing pressures due to the enhanced purchasing power of the private sector providers that will negotiate on behalf of Medicare beneficiaries.

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     If our competitors are able to develop and market products that are more effective, safer or less costly than any products that we may develop, our commercial opportunity will be reduced or eliminated.

     We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive than any products that we may develop. In addition, significant delays in the development of our product candidates could allow our competitors to bring products to market before us and impair our ability to commercialize our product candidates.

     We estimate that we have at least five competitors in the neuropathic pain and RLS therapeutic areas, including GSK, Eli Lilly and Company and Pfizer. Competition for XP13512 could include: approved drugs that act on the same target as XP13512, such as pregabalin, Neurontin and generic gabapentin; anti-Parkinson’s disease products and product candidates, such as ropinirole from GSK, which is approved for the treatment of moderate-to-severe RLS, pramipexole from Boehringer Ingelheim GmbH, which is approved for the treatment of moderate-to-severe RLS and the rotigotine patch from Schwarz Pharma AG, which has recently announced Phase 3 data for the treatment of moderate-to-severe RLS; serotonin norepinephrine inhibitors, such as duloxetine from Eli Lilly, which is approved for the management of painful diabetic neuropathy; and gabapentin GR from Depomed, Inc., which is in a Phase 3 trial for post-herpetic neuralgia, or PHN. We are aware that generic gabapentin is marketed by Alpharma Inc., Pfizer, Teva and IVAX Corp, among others, and that it is prescribed off-label to treat a variety of conditions. We estimate that XP19986 could have several generic drug competitors in the spasticity area. There are several drugs approved for the treatment of spasticity, such as racemic baclofen, diazepam, dantrolene sodium and tizanidine, and many therapies in development, such as Fampridine-SR from Acorda Therapeutics, Inc., that could compete with XP19986. We estimate that we have at least three competitors in the GERD therapeutic area, including AstraZeneca, Wyeth and TAP Pharmaceutical Products Inc. In addition, there may be other compounds of which we are not aware that are at an earlier stage of development and may compete with our product candidates. If any of those compounds are successfully developed and approved, they could compete directly with our product candidates.

     Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Established pharmaceutical companies may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. In addition, these third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do. We are also aware of other companies that may currently be engaged in the discovery of medicines that will compete with the product candidates that we are developing. In addition, in the markets that we are targeting, we expect to compete against current market-leading medicines. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition will suffer.

     Off-label sale or use of generic gabapentin products could decrease sales of XP13512 and could lead to pricing pressure if such products become available at competitive prices and in dosages that are appropriate for the indications for which we or our collaborative partners are developing XP13512.

     Physicians are permitted to prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those uses tested and approved by the FDA. Such off-label uses are common across medical specialties. Various products are currently sold and used off-label for some of the diseases and conditions that we or our partners are targeting, and a number of companies are, or may be, developing new treatments that may be used off-label. The occurrence of such off-label uses could significantly reduce our or our partners’ ability to market and sell any products that we or our partners may develop.

     We believe that in all countries in which we hold or have licensed rights to patents or patent applications related to XP13512, the composition-of-matter patents relating to gabapentin have expired. Off-label prescriptions written for gabapentin could adversely affect our ability to generate revenue from the sale of XP13512, if approved for commercial sale. This could result in reduced sales and pricing pressure on XP13512, if approved, which in turn would reduce our ability to generate revenue and have a negative impact on our results of operations.

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     If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

     Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading clinicians. If we are not able to retain Drs. Ronald Barrett, Kenneth Cundy, William Dower, Mark Gallop and Pierre Trân, we may not be able to successfully develop or commercialize our product candidates. Competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. In addition, none of our employees have employment commitments for any fixed period of time and could leave our employment at will. We do not carry “key person” insurance covering members of senior management or key scientific personnel. If we fail to identify, attract and retain qualified personnel, we may be unable to continue our development and commercialization activities.

     We will need to hire additional employees in order to commercialize our product candidates. Any inability to manage future growth could harm our ability to commercialize our product candidates, increase our costs and adversely impact our ability to compete effectively.

     In order to commercialize our product candidates, we will need to expand the number of our managerial, operational, financial and other employees. We currently anticipate that we will need at least 250 additional employees by the time that XP13512 or XP19986 is initially commercialized, including at least 80 sales representatives. Because the projected timeframe of hiring these additional employees depends on the development status of our product candidates and because of the numerous risks and uncertainties associated with drug development, we are unable to project when we will hire these additional employees. While to date we have not experienced difficulties in recruiting, hiring and retaining qualified individuals, the competition for qualified personnel in the pharmaceutical and biotechnology field is intense.

     Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to manage any future growth effectively.

     If product liability lawsuits are brought against us, we will incur substantial liabilities and may be required to limit commercialization of any products that we may develop.

     We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products that we may develop caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

• decreased demand for any product candidates or products that we may develop;

• injury to our reputation;

• withdrawal of clinical trial participants;

• costs to defend the related litigation;

• substantial monetary awards to clinical trial participants or patients;

• loss of revenue; and

• the inability to commercialize any products that we may develop.

     We have product liability insurance that covers our clinical trials up to a $5.0 million annual aggregate limit. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for any products that we may develop. Insurance coverage is increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.

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     If we use biological and hazardous materials in a manner that causes contamination, injury or violates laws, we may be liable for damages.

     Our research and development activities involve the use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We, the third parties that conduct clinical trials on our behalf and the third parties that manufacture our product candidates are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and waste products. The cost of compliance with these laws and regulations could be significant. The failure to comply with these laws and regulations could result in significant fines and work stoppages and may harm our business.

     Our facility is located in California’s Silicon Valley, in an area with a long history of industrial activity and use of hazardous substances, including chlorinated solvents. Environmental studies conducted prior to our leasing of the site found levels of metals and volatile organic compounds in the soils and groundwater at our site. While these constituents of concern predated our occupancy, certain environmental laws, including the U.S. Comprehensive, Environmental Response, Compensation and Liability Act of 1980, impose strict, joint and several liability on current operators of real property for the cost of removal or remediation of hazardous substances. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances. As a result, while we have not been, we cannot rule out the possibility that we could in the future be held liable for costs to address contamination at the property beneath our facility, which costs could be material.

     Our facility is located near known earthquake fault zones, and the occurrence of an earthquake, extremist attack or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations.

     Our facility is located near known earthquake fault zones and, therefore, is vulnerable to damage from earthquakes. In October 1989, a major earthquake struck this area and caused significant property damage and a number of fatalities. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fire, floods and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. In addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from this type of disaster. We currently may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.

Risks Related to Ownership of our Common Stock

     Our stock price is volatile, and purchasers of our common stock could incur substantial losses.

     The market prices for securities of biopharmaceutical companies in general have been highly volatile. The market price of our common stock may be influenced by many factors, including:

• adverse results or delays in our clinical trials;

• the timing of achievement of our clinical, regulatory, partnering and other milestones, such as the commencement of clinical development, the completion of a clinical trial, the receipt of regulatory approval or the establishment of commercial partnerships for one or more of our product candidates;

• announcement of FDA approval or non-approval of our product candidates or delays in the FDA review process;

• actions taken by regulatory agencies with respect to our product candidates, our clinical trials or our sales and marketing activities;

• the commercial success of any of our products approved by the FDA or its foreign counterparts;

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• regulatory developments in the United States and foreign countries;

• changes in the structure of healthcare payment systems;

• any intellectual property infringement lawsuit involving us;

• announcements of technological innovations or new products by us or our competitors;

• market conditions for the biotechnology or pharmaceutical industries in general;

• changes in financial estimates or recommendations by securities analysts;

• sales of large blocks of our common stock;

• sales of our common stock by our executive officers, directors and significant stockholders;

• restatements of our financial results and/or material weaknesses in our internal controls; and

• the loss of any of our key scientific or management personnel.

     The stock markets in general, and the markets for biotechnology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs, which would hurt our financial condition and results of operations, divert management’s attention and resources, and possibly delay our clinical trials or commercialization efforts.

     Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price.

     Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to, and reporting on, these assessments. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If we cannot favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

Fluctuations in our operating results could cause our stock price to decline.

     The following factors are likely to result in fluctuations of our operating results from quarter to quarter and year to year:

• adverse results or delays in our clinical trials;

• the timing and achievement of our clinical, regulatory, partnering and other milestones, such as the commencement of clinical development, the completion of a clinical trial, the receipt of regulatory approval or the establishment of a commercial partnership for one or more of our product candidates;

• announcement of FDA approval or non-approval of our product candidates or delays in the FDA review process;

• actions taken by regulatory agencies with respect to our product candidates, our clinical trials or our sales and marketing activities;

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• the commercial success of any of our products approved by the FDA or its foreign counterparts;

• regulatory developments in the United States and foreign countries;

• changes in the structure of healthcare payment systems;

• any intellectual property infringement lawsuit involving us; and

• announcements of technological innovations or new products by us or our competitors.

     Due to these fluctuations in our operating results, a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular financial period, the actual or anticipated fluctuations could be below the expectations of securities analysts or investors and our stock price could decline.

     Because a small number of existing stockholders own a large percentage of our voting stock, they may be able to exercise significant influence over our affairs, acting in their best interests and not necessarily those of other stockholders.*

     As of April 13, 2007, our executive officers, directors and holders of 5% or more of our outstanding common stock beneficially owned approximately 28.3% of our common stock. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquiror from attempting to obtain control of us, which in turn could reduce the price of our common stock.

     Our stockholder rights plan and anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

     Provisions in our amended and restated certificate of incorporation and bylaws may delay or prevent an acquisition of us, a change in our management or other changes that stockholders may consider favorable. These provisions include:

• a classified board of directors;

• a prohibition on actions by our stockholders by written consent;

• the ability of our board of directors to issue preferred stock without stockholder approval, which could be used to make it difficult for a third party to acquire us;

• notice requirements for nominations for election to the board of directors; and

• limitations on the removal of directors.

     Moreover, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

     We have adopted a rights agreement under which certain stockholders have the right to purchase shares of a new series of preferred stock at an exercise price of $140.00 per one one-hundredth of a share, if a person acquires more than 15% of our common stock. The rights plan could make it more difficult for a person to acquire a majority of our outstanding voting stock. The rights plan could also reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being lower than it would be without the rights plan. In addition, the existence of the rights plan itself may deter a potential acquiror from acquiring us. As a result, either by operation of the rights plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur.

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     If there are large sales of our common stock, the market price of our common stock could drop substantially.*

     If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of our common stock, the market price of our common stock could decline significantly. As of April 13, 2007, we had 24,797,684 outstanding shares of common stock. Of these shares, up to 15,147,259 shares of common stock are tradable under Rule 144 or Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, subject in some cases to various vesting agreements, volume limitations and holding periods, and the remainder of the shares have been registered under the Securities Act and are freely tradable. In addition, 3,231,812 shares are held by our directors and executive officers and their affiliates and will be subject to volume, manner of sale and other limitations under Rule 144 under the Securities Act and various vesting agreements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

     On January 17, 2007, pursuant to the net exercise of a warrant, we issued 6,325 shares of our common stock to Alexandria Real Estate Equities Inc. at a purchase price of $6.00 per share. The sale and issuance of the common stock was exempt from registration pursuant to the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated thereunder as a transaction not involving any public offering. We believe that the issuance is exempt from the registration requirements of the Securities Act on the basis that: (a) the purchaser of the securities represented that it was an accredited investor as defined under the Securities Act; (b) there was no general solicitation; and (c) the purchaser of the securities represented that it was purchasing such shares for its own account and not with a view towards distribution. Appropriate legends were affixed to the stock certificates issued in such transaction stating that the shares are not registered under the Securities Act and, therefore, cannot be resold unless they are registered under the Securities Act or unless an exemption to registration is available

Use of Proceeds from the Sale of Registered Securities

     Our initial public offering of common stock was effected through a Registration Statement on Form S-1, as amended (File No. 333-122156), which was declared effective by the SEC on June 2, 2005 and pursuant to which we sold 5,000,000 shares of our common stock. Morgan Stanley & Co. Incorporated acted as the sole book running and joint lead manager for the offering, Deutsche Bank Securities acted as co-lead manager for the offering, and co-managers for the offering were Pacific Growth Equities, LLC and Lazard Capital Markets. In July 2005, the underwriters partially exercised their over-allotment option and purchased an additional 9,569 shares of our common stock, and we received net cash proceeds of approximately $63,000, after deducting underwriting discounts and commissions and other offering expenses. As of March 31, 2007, all of the approximately $46.4 million in net proceeds received by us in the offering, after deducting approximately $6.2 million in underwriting discounts, commissions and other costs and expenses, had been used for general corporate purposes, including clinical trial, research and development, general and administrative and manufacturing expenses.

     No payments were made to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors as compensation for board or board committee service.

Issuer Purchases of Equity Securities

     The following table provides information relating to repurchases of our common stock in the three months ended March 31, 2007:

					Total Number of		Approximate
					Shares		Dollar Value of
					Purchased as		Shares that May
	Total Number		Average		Part of Publicly		Yet Be Purchased
	of Shares		Price Paid		Announced		Under the
Period	Purchased (1)		per Share		Program		Program
January 1, 2007 — January 31, 2007		—	$	—		N/A		N/A
February 1, 2007 — February 28, 2007		4,109	$	3.18		N/A		N/A
March 1, 2007 — March 31, 2007		3,403	$	5.15		N/A		N/A
Total		7,512	$	4.07		N/A		N/A

(1) The 7,512 shares of our common stock were repurchased by us from an employee upon termination of service pursuant to the terms and conditions of the company’s 1999 Stock Plan, which permits us to elect to purchase such shares at the original issuance price.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

     On April 25, 2007, XenoPort, Inc. announced positive top-line results from a Phase 3 clinical trial of the company’s most advanced product candidate, XP13512, for the treatment of symptoms of primary restless legs syndrome (RLS). XP13512 demonstrated statistically significant improvements compared to placebo on both of the co-primary endpoints of the trial and was well tolerated.

     This XenoPort study was a 12-week, double-blind, placebo-controlled Phase 3 clinical trial that enrolled 222 patients who were diagnosed with moderate-to-severe primary RLS. Patients were treated with either 1200 mg of XP13512 or placebo, given once per day. The co-primary endpoints for the clinical trial were the change from baseline for the International RLS (IRLS) rating scale score at end of treatment and the percentage of patients showing significant improvement on the Clinical Global Impression of Improvement (CGI-I) scale at end of treatment.

     Treatment with 1200 mg of XP13512 was associated with a statistically significant improvement in the co-primary endpoints compared to placebo. Improvements in the IRLS Scale were significantly greater for XP13512 than for placebo (-13.2 vs. -8.8: p=0.0002). At the end of treatment, significantly more patients treated with XP13512 were reported as “much improved” or “very much improved” on the CGI-I scale compared to those treated with placebo (76% vs. 39%: p < 0.0001).

     During treatment over the 12-week period, the most commonly reported adverse events for XP13512 versus placebo were somnolence (26.5% XP13512; 7.4% placebo) and dizziness (19.5% XP13512; 4.6% placebo). There were no reported serious adverse events in XP13512-treated patients.

Item 6. Exhibits

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (1)
3.2	Amended and Restated Bylaws (1)
3.3	Certificate of Designation of Series A Junior Participating Preferred Stock (2)
4.1	Specimen Common Stock Certificate (3)
4.2	Fifth Amended and Restated Investors Rights Agreement, dated December 16, 2004, by and among the Company and certain stockholders of the Company (4)
4.3	Form of Rights Certificate (5)
10.4.1	Sublease Termination Agreement, dated January 22, 2007, by and between the Company and ILYPSA, Inc. (6)
10.24	XenoPort, Inc. Corporate Bonus Plan (7)
10.29†	Development and Commercialization Agreement, dated February 7, 2007, by and between the Company and Glaxo Group Limited
10.29.1	First Amendment to Development and Commercialization Agreement, dated May 4, 2007, by and between the Company and Glaxo Group Limited
31.1	Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350) (8)

†	Confidential treatment has been requested for portions of this exhibit. Omitted portions have been filed separately with the SEC pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
(1)	Incorporated herein by reference to the same numbered exhibit of our quarterly report on Form 10-Q (File No. 000-51329) for the period ended June 30, 2005, as filed with the SEC on August 11, 2005.
(2)	Filed as Exhibit 3.1 to our current report of Form 8-K, filed with the SEC on December 16, 2005, and incorporated herein by reference.
(3)	Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1, as amended (File No. 333-122156), as filed with the SEC on April 13, 2005.
(4)	Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-122156), as filed with the SEC on January 19, 2005.
(5)	Filed as Exhibit 4.1 to our current report of Form 8-K, filed with the SEC on December 16, 2005, and incorporated herein by reference.
(6)	Incorporated herein by reference to the same numbered exhibit of our annual report on Form 10-K (File No. 000-51329), for the year ended December 31, 2006, as filed with the SEC on March 7, 2007.
(7)	Filed as the same numbered exhibit to our current report of Form 8-K, filed with the SEC on February 2, 2007, and incorporated herein by reference.
(8)	This certification accompanies the quarterly report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	XenoPort, Inc.
	(Registrant)
	/s/ Ronald W. Barrett
May 9, 2007	Ronald W. Barrett
	Chief Executive Officer and Director
	/s/ William G. Harris
	William G. Harris
	Senior Vice President of Finance and
May 9, 2007	Chief Financial Officer (principal
	financial and accounting officer)
	/s/ Martyn J. Webster
	Martyn J. Webster
May 9, 2007	Vice President of Finance

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EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (1)
3.2	Amended and Restated Bylaws (1)
3.3	Certificate of Designation of Series A Junior Participating Preferred Stock (2)
4.1	Specimen Common Stock Certificate (3)
4.2	Fifth Amended and Restated Investors Rights Agreement, dated December 16, 2004, by and among the Company and certain stockholders of the Company (4)
4.3	Form of Rights Certificate (5)
10.4.1	Sublease Termination Agreement, dated January 22, 2007, by and between the Company and ILYPSA, Inc. (6)
10.24	XenoPort, Inc. Corporate Bonus Plan (7)
10.29†	Development and Commercialization Agreement, dated February 7, 2007, by and between the Company and Glaxo Group Limited
10.29.1	First Amendment to Development and Commercialization Agreement, dated May 4, 2007, by and between the Company and Glaxo Group Limited
31.1	Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350) (8)

†	Confidential treatment has been requested for portions of this exhibit. Omitted portions have been filed separately with the SEC pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
(1)	Incorporated herein by reference to the same numbered exhibit of our quarterly report on Form 10-Q (File No. 000-51329) for the period ended June 30, 2005, as filed with the SEC on August 11, 2005.
(2)	Filed as Exhibit 3.1 to our current report of Form 8-K, filed with the SEC on December 16, 2005, and incorporated herein by reference.
(3)	Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1, as amended (File No. 333-122156), as filed with the SEC on April 13, 2005.
(4)	Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-122156), as filed with the SEC on January 19, 2005.
(5)	Filed as Exhibit 4.1 to our current report of Form 8-K, filed with the SEC on December 16, 2005, and incorporated herein by reference.
(6)	Incorporated herein by reference to the same numbered exhibit of our annual report on Form 10-K (File No. 000-51329), for the year ended December 31, 2006, as filed with the SEC on March 7, 2007.
(7)	Filed as the same numbered exhibit to our current report of Form 8-K, filed with the SEC on February 2, 2007, and incorporated herein by reference.
(8)	This certification accompanies the quarterly report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

EX-10.29

Exhibit 10.29

Certain confidential information contained in this document, marked by brackets, is
filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.

DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

     THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (“Agreement”) dated as of February 7, 2007 (“Effective Date”), is entered into between XenoPort, Inc., a Delaware corporation having its principal place of business at 3410 Central Expressway, Santa Clara, CA 95051 (“XenoPort”) and Glaxo Group Limited, a company existing under the laws of England and Wales, having its registered office at Glaxo Wellcome House, Berkeley Avenue, Greenford, Middlesex, UB6 0NN, England (“GSK”).

BACKGROUND

     A. XenoPort is developing a Transported Prodrug™ of gabapentin (as further defined below, the “Product”) for the treatment of restless leg syndrome (“RLS”) and the management of neuropathic pain. XenoPort owns or controls certain patents, know-how and other intellectual property relating to such Product;

     B. GSK desires to co-develop and co-commercialize the Product with XenoPort in the United States (as hereinafter defined), and to further develop and commercialize the Product in other countries in the Territory (as hereinafter defined), and XenoPort desires to have the Product developed and commercialized in the Territory by and with GSK, in accordance with this Agreement; and

     C. GSK desires to obtain from XenoPort certain distribution and license rights for the Product in the Territory, and XenoPort is willing to grant to GSK such rights on the terms and conditions set forth in this Agreement;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties (as hereinafter defined) hereby agree as follows:

ARTICLE I

DEFINITIONS

     As used in this Agreement, the following capitalized terms will have the meanings set forth in this Article 1 when used in this Agreement.

     1.1 “Affiliate” of a Party shall mean any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Party, as the

case may be, for as long as such control exists. As used in this Section 1.1, “control” shall mean: (a) to possess, directly or indirectly, the power to direct the management and policies of such Person, whether through ownership of voting securities or by contract relating to voting rights or corporate governance; or (b) direct or indirect beneficial ownership of at least fifty percent (50%) (or such lesser percentage that is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of the voting share capital in such Person. A “Controlled Affiliate” is an Affiliate that [... * ...].

     1.2 “Annual Net Sales” shall mean total Net Sales in a country or countries in the Territory in a particular calendar year.

     1.3 “Anti-Kickback Statute” means the Medicare and Medicaid Anti-Kickback Statute set forth at 42 U.S.C. §1320a-7b(b).

     1.4 “Applicable Commercial Practices Policies” means the portions as identified by GSK of the Commercial Practices Policies of GSK applicable (and as applied generally to GSK’s own personnel) to the marketing, sale, promotion and detailing of pharmaceutical products, as amended or supplemented by GSK from time to time, a copy of which will be delivered to XenoPort prior to XenoPort Co-Promoting and Detailing the Product and/or Detailing the REQUIP™ Products in the United States and updated copies will thereafter be delivered to XenoPort as and when amended or supplemented.

     1.5 “Applicable Laws” means the applicable provisions of any and all national, supranational, regional, state and local laws, treaties, statutes, rules, regulations, administrative codes, guidances, ordinances, judgments, decrees, directives, injunctions, orders, permits (including Marketing Approvals) of or from any court, arbitrator, Regulatory Authority or governmental agency or authority having jurisdiction over or related to the subject item.

     1.6 “Asian Territory” shall mean Indonesia, Japan, Korea, Philippines, Taiwan and Thailand.

     1.7 “Astellas” shall mean Astellas Pharma Inc. and its Affiliates, and any other Third Parties to whom Astellas or XenoPort has granted a right to sell, market, distribute and/or promote a Product in a country in the Asian Territory. To the extent Astellas’ rights in the Asian Territory terminate and XenoPort grants rights to a Third Party, references herein to Astellas shall be deemed to reference such Third Party.

     1.8 “Astellas Agreement” shall mean the Distribution and License Agreement dated December 1, 2005 between XenoPort and Astellas.

     1.9 “Astellas Know-How” shall mean any scientific, medical, technical, marketing, regulatory and/or other information, data and materials (including, preclinical data, clinical data, clinical pharmacology data and regulatory filings and approvals submitted or obtained, together with

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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its supporting data and regulatory correspondence and rights to reference the same) primarily relating to the Compound and/or any Product, which is Controlled by Astellas as of the Effective Date or during the Term; provided, however, that [... * ...].

     1.10 “Call” shall mean a face-to-face meeting in an individual, hospital or group setting between a Sales Representative and one or more members of the Target Audience.

     1.11 “Change of Control” shall mean either: (a) a sale of all or substantially all of the assets of a Party in one or a series of integrated transactions not in the ordinary course of business to a Third Party; or (b) the acquisition of a Party by a Third Party by means of any transaction or series of related transactions to which such Party is a party (including, any stock acquisition, merger or consolidation). For clarity, a Change of Control would not include any transaction or series of transactions in which the holders of voting securities of a Party outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Party held by such holders prior to such transaction, fifty percent (50%) or more of the total voting power represented by the voting securities of the acquiring entity outstanding immediately after such transaction or series of transactions.

     1.12 “Commercially Reasonable Efforts” shall mean that level of efforts and resources consistent with the usual practice followed by a Party in the exercise of reasonable business discretion relating to other pharmaceutical products owned by it or to which it has exclusive rights, which is of similar market potential and at a similar stage in development or product life, taking into account issues of patent coverage, safety and efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the compound or product, the regulatory structure involved, the profitability of the products (including, without limitation, pricing and reimbursement status achieved), and other relevant factors, including without limitation technical, legal, scientific, and/or medical factors.

     1.13 “Compound” shall mean that certain compound, referred to internally at XenoPort as XP13512, the structure of which is set forth on Exhibit 1.13, and all esters, hydrates, metabolites [... * ...], salts, solvates, isomers and/or mixtures of isomers thereof.

     1.14 “Control” (including any variations such as “Controlled” and “Controlling”), in the context of intellectual property rights of a Party, shall mean that such Party or its Controlled Affiliate owns or possesses rights to intellectual property sufficient to grant the applicable license under this Agreement, without violating the terms of an agreement with a Third Party.

     1.15 “Co-Promotion” (including any variations such as “Co-Promote”) shall mean those promotional and sales activities undertaken by a pharmaceutical company’s sales force in concert with at least one other pharmaceutical company’s sales force in a single territory to implement the marketing and/or sales plans with respect to a particular prescription pharmaceutical product under the same trademark in such territory.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     1.16 “Data” shall mean any and all research data, pharmacology data, preclinical data, clinical data and/or all regulatory documentation, information and submissions pertaining to, or made in association with an IND, Marketing Approval Application, Marketing Approval or the like for the Product, in each case that are Controlled by a Party or its Controlled Affiliates as of the Effective Date or during the Term.

     1.17 “Detail” (including any variations such as “Detailing”) shall mean that part of the activity undertaken by a Sales Representative during a Call whereby a Sales Representative, who has been trained with respect to the REQUIP™ Products or the Product, as applicable, in accordance with Section 5.4(c), makes a presentation: (a) describing [... * ...] as applicable; (b) which may also include [... * ...]; and (c) in accordance with the [... * ...], as applicable. [... * ...], shall not constitute a Detail. [... * ...] as applicable, shall not constitute a Detail. As used herein, a [... * ...] in which [... * ...] (as consistent with industry norms) [... * ...].

     1.18 “EMEA” shall mean the European Medicines Agency of the European Union, or any successor entity thereto performing similar functions.

     1.19 “Existing Phase III Studies” shall mean those certain Phase III clinical studies [... * ...]

     1.20 “FDA” shall mean the United States Food and Drug Administration, or any successor entity thereto performing similar functions.

     1.21 “FD&C Act” means the federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder from time to time.

     1.22 “Field” shall mean the diagnosis, palliation, treatment and/or prevention of any disease or health condition in humans.

     1.23 “Filing” of an MAA shall be deemed to occur on the date of receipt of written notice of acceptance from the FDA in the United States, or other relevant Regulatory Authority outside of the United States, of such MAA for substantive review. Validation of an MAA by the EMEA shall be deemed to constitute acceptance of such MAA for substantive review in a Major Market (other than the United States) and, if an MAA is submitted under the EU mutual recognition procedure and validated by the relevant Regulatory Authority in the reference member state, such MAA shall be deemed to be accepted in a Major Market (other than the United States) upon confirmation that the resulting approval in the reference member state will serve as the basis for a mutual recognition procedure in such Major Market (other than the United States).

     1.24 “First Commercial Sale” shall mean, on a country-by-country basis and Product-by-Product basis, the first bona fide, arm’s length sale of a Product in a country following receipt of Marketing Approval of such Product in such country for use or consumption by the general public of such Product in such country. Sales of a Product for registration samples, compassionate use sales,

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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named patient use, inter-company transfers to Affiliates of a Party and the like will not constitute a First Commercial Sale.

     1.25 “GSK Know-How” shall mean all scientific, medical, technical, marketing, regulatory and other information primarily relating to the Product (including Data), which are Controlled by GSK or its Controlled Affiliates during the Term, that are needed by or reasonably useful to XenoPort in order for XenoPort to exercise its rights or perform its obligations under this Agreement and the Astellas Agreement; provided, however, that [... * ...].

     1.26 “GSK Trademarks” shall mean the Trademarks Controlled by GSK or its Controlled Affiliates as of the Effective Date or during the Term, which are used with the Products in the Field in the Territory.

     1.27 “IND” shall mean any Investigational New Drug Application (including any amendments thereto) filed with the FDA pursuant to 21 C.F.R. §321 before the commencement of clinical trials of a Product, or any comparable filings with any Regulatory Authority in any other jurisdiction.

     1.28 “Major Market” shall mean the United States, France, Germany, Italy, Spain and/or the United Kingdom.

     1.29 “Major Pharmaceutical Company” shall mean a company that is engaged in the business of selling pharmaceutical products, whose revenues from such sales (on a consolidated basis in the last full fiscal year prior to the closing of any Change of Control) was in excess of [... * ...]. Any Affiliate of such company shall be deemed to be a Major Pharmaceutical Company.

     1.30 “Marketing Approval” shall mean all approvals, licenses, registrations or authorizations of the Regulatory Authority in a country, necessary for the manufacture, use, storage, import, marketing and sale of a Product in such country. For countries where governmental or other similar approval of pricing and/or reimbursement is required for marketing in such country, Marketing Approval shall not be deemed to occur until such pricing or reimbursement approval is obtained. Notwithstanding the foregoing, Marketing Approval shall be deemed to have occurred for a particular indication for a Product in such jurisdiction upon the First Commercial Sale of such Product in such jurisdiction with labeling for such indication.

     1.31 “Marketing Approval Application” (or “MAA”) shall mean a NDA submitted to the FDA in the United States or a corresponding application for Marketing Approval that has been submitted to a Regulatory Authority in any other country in the Territory.

     1.32 “NDA” shall mean a New Drug Application as defined in Title 21 of the U.S. Code of Federal Regulations, Section 314.50, et seq., which is filed with the FDA in order to gain the FDA’s approval to commercialize a pharmaceutical product in the United States for the indications set forth in the New Drug Application.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     1.33 “Net Sales” shall mean the gross invoice price by GSK or its Affiliates or Sublicensees, as the case may be, for all Products sold by of GSK, its Affiliates or Sublicensees (“Selling Party”) under this Agreement in a country or countries in the Territory in arm’s length sales to Third Parties less the following deductions that are actually incurred, allowed, paid, accrued or specifically allocated to the extent that such amounts are deducted from gross invoiced sales amounts as reported by the Selling Party in its financial statements in accordance with the International Financial Reporting Standards (“IFRS”), applied on a consistent basis:

     (a) trade, quantity and cash discounts and allowances;

     (b) credits, rebates and charge backs or equivalents thereof (including those to managed-care entities, national, state/provincial, local and other governments, their agencies and purchasers, and to trade customers);

     (c) allowances or credits to customers on account of rejection or returns (including wholesaler and retailer returns), retroactive price reductions affecting such Product or billing errors;

     (d) freight, postage and duties, and transportation charges relating to such Product (including handling and insurance thereto) separately identified on the invoice or other documentation maintained in the ordinary course of business;

     (e) sales (such as value-added tax or its equivalent) and excise taxes, other consumption taxes, customs duties and compulsory payments to governmental authorities and any other governmental charges imposed upon the sale of a Product to Third Parties;

     (f) commissions allowed or paid to Third Party wholesalers, or other similar Third Party distributors, in each case who do not engage in marketing or promotion of the Product;

     (g) [... * ...] bad debt reported [... * ...] in which [... * ...] or [... * ...] or [... * ...] in which [... * ...]; and

     (h) any other items actually deducted from (and therefore not included as) gross invoiced sales amounts in determining revenue, and not otherwise included as an item of income or the like, as reported by a Selling Party in its financial statements in accordance with the IFRS, applied on a consistent basis.

     Sales between GSK and its Affiliates or Sublicensees for resale shall be excluded from the computation of Net Sales, and no payments will be payable on such sales except where such Affiliates or Sublicensees are end users. If a Product is sold or transferred for consideration other than cash, the Net Sales from such sale or transfer shall be deemed the then fair market value of such Product. [... * ...]

     In the event that [... * ...] the Net Sales [... * ...] shall be [... * ...] during the applicable reporting period [... * ...] in which [... * ...] In the event that [... * ...] then Net Sales for purposes

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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of [... * ...] shall be [... * ...] on the [... * ...] shall not [... * ...] If [... * ...] as provided in this paragraph, the matter shall be resolved in accordance with Section 18.2 below.

     1.34 “Neuropathic Pain Indication” shall mean an indication for the Product involving [... * ...].

     1.35 “Party” shall mean XenoPort or GSK individually, and “Parties” shall mean XenoPort and GSK collectively.

     1.36 “Patent(s)” shall mean any patents and patent applications, together with all additions, divisions, continuations, continuations-in-part, substitutions, reissues, re-examinations, extensions, registrations, patent term extensions, supplemental protection certificates and renewals of any of the foregoing.

     1.37 “PDMA” means the federal Prescription Drug Marketing Act of 1987, as amended, and the regulations promulgated thereunder from time to time.

     1.38 “Person” means any individual, corporation, partnership, firm, association, joint venture, joint stock company, trust or other entity, or any government or regulatory administrative or political subdivision or agency, department or instrumentality thereof.

     1.39 “Phase I” shall mean a human clinical trial, the principal purpose of which is to demonstrate safety, tolerability and pharmacokinetics of the Product in volunteer or patient subjects, as further described in 21 C.F.R. §312.21(a) (including, any such clinical study in any country other than the United States).

     1.40 “Phase III” shall mean a human clinical trial, the principal purpose of which is to establish safety and efficacy of the Product in patients with the disease being studied, as further described in 21 C.F.R. §312.21(c) (including, any such clinical study in any country other than the United States), which is designed and intended to be of a size and statistical power sufficient to serve as a pivotal study to support the filing of an MAA for the indication being studied.

     1.41 “Phase IV” shall mean a human clinical trial conducted with respect to a Product: (a) after [... * ...]; (b) within the [... * ...]; and (c) intended as [... * ...]. Phase IV studies may include, for example, [... * ...], and the like. Phase IV studies shall not include any human clinical trials: (i) [... * ...]; and/or (ii) from which [... * ...] for the purposes of: [... * ...] or [... * ...] provided that in the case of paragraph (ii), [... * ...].

     1.42 “PhRMA Code” means the PhRMA Code on Interactions with Health Care Professionals, as amended.

     1.43 “Product” shall mean any pharmaceutical product containing the Compound, alone or in combination with one or more other active pharmaceutical ingredients, in any dosage form or formulation.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     1.44 “Promotional Materials” means all written, printed, video or graphic advertising, promotional, educational and communication materials [... * ...] for marketing, advertising, promotion and sale of the Product or the REQUIP™ Products, as applicable, for use in the United States (a) [... * ...].

     1.45 “Regulatory Authority” shall mean the FDA, or a regulatory body with similar regulatory authority in any other jurisdiction within the Territory.

     1.46 “Regulatory Filing” means all approvals, licenses, registrations, submissions and authorizations made to or received from a Regulatory Authority in a country necessary for the development, manufacture and/or commercialization of a pharmaceutical product in the Territory, including any INDs, Marketing Approval Applications and Marketing Approvals.

     1.47 “REQUIP™ Products” shall mean those certain pharmaceutical products Controlled by GSK or its Affiliates as of the Effective Date, which contain ropinirole HCL as an active ingredient and are known as of the Effective Date as REQUIP CR and REQUIP XL 24h.

     1.48 “REQUIP™ Trademarks” shall mean shall mean the Trademarks Controlled by GSK or its Affiliates as of the Effective Date and during the Term, which are used with the REQUIP™ Products in the Field in the Territory.

     1.49 “RLS Indication” shall mean an indication for the Product involving RLS.

     1.50 “Sales Representative” shall mean a professional pharmaceutical sales representative engaged or employed by either Party to conduct sales activities and other promotional efforts with respect to a Product and/or the REQUIP™ Products.

     1.51 “Samples” shall mean individual physician sample units of the Product or the REQUIP™ Products, as applicable.

     1.52 “Sublicensee” shall mean a Third Party to whom GSK has granted a right to sell, market, distribute and/or promote a Product in the Territory pursuant to Section 2.2 and “Sublicense” shall mean an agreement or arrangement between GSK and a Sublicensee granting such rights. As used in this Agreement, “Sublicensee” shall not include a wholesaler or reseller of a Product who does not market or promote such Product.

     1.53 “Target Audience” means those health care professionals legally permitted to prescribe the Product or the REQUIP™ Products, as applicable, or issue hospital orders for the Product or the REQUIP™ Products, as applicable, in each case in the United States, or those other allied professionals that are part of the treatment team and who are recognized for this purpose in the Co-Promotion Plan or the REQUIP™ Sales Plan, as applicable.

     1.54 “Territory” shall mean worldwide, except for the Asian Territory.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     1.55 “Third Party” shall mean any Person other than XenoPort, GSK and their respective Affiliates.

     1.56 “Trademarks” means registered and unregistered trademarks, including words and logos, and any applications for registrations thereof, and intellectual property rights residing in such trademarks, including copyrights and design rights.

     1.57 “United States” or “U.S.” means the fifty (50) states of the United States of America and the District of Columbia.

     1.58 “XenoPort Know-How” shall mean all scientific, medical, technical, regulatory and other information primarily relating to the Compound and the Product (including the Data), which are Controlled by XenoPort or its Controlled Affiliates as of the Effective Date or during the Term, that were generated or utilized by XenoPort or its Controlled Affiliates in developing or producing the Product or are otherwise reasonably necessary for GSK to exercise its rights or perform its obligations under this Agreement; provided, however, that [... * ...].

     1.59 “XenoPort Patents” shall mean: (a) the Patents Controlled by XenoPort or its Controlled Affiliates listed on Exhibit 1.59, together with all additions, divisions, continuations, substitutions, re-issues, re-examinations, extensions, registrations, patent term extensions, supplemental protection certificates and renewals of any such Patents; and (b) all [... * ....].

     1.60 “XenoPort Trademarks” shall mean the Trademarks Controlled by XenoPort or its Controlled Affiliates and reflected in Exhibit 1.60 hereto, the applications for which have been filed in the name of XenoPort, or another mutually agreed Trademark Controlled by XenoPort or its Affiliates, in each case for use with the Products in the Field in the Territory.

     1.61 Additional Definitions. Each of the following terms shall have the meaning described in the corresponding section of this Agreement indicated below:

Term	Section Defined	Term	Section Defined
Acquired Party	9.1(d)	Infringement Actions	12.4
[... * ...]	Exhibit 6.5	JAMS	18.2
Additional Sales Representatives	5.2(e)	Joint Commercialization Committee / JCC	3.3(a)
Agreement	Introduction	Joint Development Committee / JDC	3.2(a)
Alliance Manager	3.7	Joint P&L	6.5(c)
Asian Territory Agreement	8.4(a)(ii)	[... * ...]	6.2(c)(v)
Auditor	7.4(a) / 7.4(b)	Liabilities	17.1
Clinical Studies and Activities	4.3(a)	[... * ...]	Exhibit 6.5
[... * ...]	1.33	[... * ...]	5.2(d)(ii)
Commercialization Plan	5.1(b)
Committee	3.4(a)	[... * ...]	5.2(e)

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Term	Section Defined	Term	Section Defined
[... * ...]	6.2(c)(i)	More Favorable	8.4(c)
		Negotiation Period	8.4(a)(ii)
Competitive Compound	12.3(a)	[... * ...]	4.6(a)
[... * ...]	6.2(c)(ii)	Operating Profit/Loss Percentage	6.5(c)
[... * ...]
Confidential Information	11.1	Operating Profits or Loss	Exhibit 6.5
Contingent Right	8.4(d)(ii)	[... * ...]	Exhibit 6.5
Continuing Party	9.1(d)	Payment Report	6.3(c)
Cooperating Party	11.5	[... * ...]	1.34
		Personnel	5.4(h)
Co-Promotion Agreement	5.5	[... * ...]	1.34
Co-Promotion Option	5.2(a)	[... * ...]	6.2(c)(vi)
Co-Promotion Plan	5.2(b)	Product Materials	15.2(g)
		Prosecution and Maintenance	12.2(a)
Co-Promotion Year	5.2(d)(i)	Re-Offer Notice	8.4(a)(iii)(A)
[... * ...]	Exhibit 6.5	Requesting Party	11.5
Damages	12.4	REQUIP™ Materials	15.2(i)
Development Plan	4.1(a)	REQUIP™ Sales Plan	5.3(b)
[... * ...]	6.2(c)(iii) / 6.2(c)(iv)
Dispute	18.1	Reversion Notice	8.4(a)(i)
DOJ	19.2	Revised Terms	8.4(a)(iii)(A)
		RLS	Recitals
Effective Date	Introduction	[... * ...]	Exhibit 6.5
Election Notice	8.4(a)(ii)	Selling Party	1.33
[... * ...]	3.6	[... * ...]	3.6
Executive Steering Committee / ESC	3.1(a)	Subcommittee	3.1(c)
		Sublicense	1.52
FTC	19.2	Supply Transition Date	10.1
Generic Competition	6.4(c)	Supply Transition Plan	10.1
Generic Product	6.4(c)	Term	14.1
GSK	Introduction	Third Party Claim	17.1
GSK Indemnitees	17.2	Third Party Royalties	6.4(a)
GSK Prosecuted XP Patents	12.2(a)	[... * ...]	2.3(c)
GSK Operating Expenses	6.5(c)	Wind-down Period	15.2(a)(ii)
HSR Act	19.1	Withdrawal Notice	3.4(b)
HSR Clearance Date	19.1	[... * ...]	6.2(c)(vii)
HSR Conditions	19.1	XenoPort	Introduction
IFRS	1.33	XenoPort House Marks	13.3
[... * ...]	12.1	XenoPort Indemnitees	17.1
[... * ...]	12.1	XenoPort Operating Expenses	6.5(c)
Indemnitee	17.3	XenoPort Prosecuted Patents	12.2(b)
Indemnitor	17.3	XenoPort Trademarks Option	13.2
Infringement	12.3(a)

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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ARTICLE II

GRANT OF LICENSE

     2.1 License. Subject to the terms and conditions of this Agreement, XenoPort hereby grants to GSK an exclusive license, with the right to grant sublicenses as provided in Section 2.2, under the XenoPort Patents and XenoPort Know-How to develop, use, make, have made, offer for sale, sell, import, market, distribute and promote the Compound and Products, in each case solely in the Field in the Territory. The rights and licenses in this Section 2.1 shall be exclusive even as to XenoPort, except with respect to: (a) [... * ...] in accordance with [... * ...] (b) [... * ...] in accordance with [... * ...] (c) [... * ...] in accordance with [... * ...] (d) [... * ...] and (e) [... * ...].

     2.2 Sublicensees.

     (a) GSK shall have the right to sublicense its rights under this Agreement: (i) in any country in the Territory to its Affiliates; (ii) to a Third Party in a particular country in the Territory if neither GSK nor any of its Affiliates have direct sales operations in such country; and (iii) to Third Parties to permit such Third Parties to provide services to and on behalf of GSK relating to the manufacturing or development of the Product, in each case of (i) through (iii) without the consent of XenoPort. GSK may sublicense its rights as provided in this Section 2.2(a) to such Affiliates solely for so long as such Person remains an Affiliate.

     (b) Except as otherwise provided in Section 2.2(a), GSK may engage Sublicensees and grant Sublicenses in any country in the Territory [... * ...] To the extent that [... * ...] In addition, [... * ....] to the same extent [... * ...]. Promptly following the execution of each Sublicense as provided in this Section 2.2(b), [... * ...].

     2.3 Activities Outside the Territory.

     (a) GSK agrees that neither it, nor any of its Controlled Affiliates, will sell or provide the Compound or the Products to any Third Party if GSK or its relevant Controlled Affiliate knows, or has reason to believe, that the Compound and/or the Products, as the case may be, sold or provided to such Third Party would be sold or transferred, directly or indirectly, for use in the Asian Territory.

     (b) XenoPort agrees that it and its Affiliates will not, and that it will use Commercially Reasonable Efforts to exercise its rights under any agreements with Astellas (including the Astellas Agreement) to cause Astellas not to, sell or provide the Compound or the

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Product to any Third Party if XenoPort, its relevant Affiliate or Astellas knows, or has reason to believe, that the Compound and/or the Products, as the case may be, sold or provided to such Third Party would be sold or transferred, directly or indirectly, for use in the Territory; provided, however, that nothing in this Agreement (including this Section 2.3(b)) shall be deemed to [... * ...]; and provided, further, that: (i) XenoPort shall [... * ...]; and (ii) XenoPort will [... * ....] and/or [... * ...] to the extent that [... * ...] and provided that [... * ...].

     (c) Subject to [... * ...] with respect to [... * ...], XenoPort agrees to keep GSK reasonably informed through the JDC of [... * ...] relating to [... * ...] to the extent XenoPort [... * ...] XenoPort represents to GSK that XenoPort [... * ...] In addition, XenoPort agrees to [... * ...] or the [... * ...] and/or [... * ...] and/or [... * ...].

     2.4 No Other Rights. Except for the rights and licenses expressly granted in this Agreement, XenoPort retains all rights under its intellectual property, and no additional rights shall be deemed granted to GSK by implication, estoppel or otherwise. For clarity, the licenses and rights granted in this Agreement shall not be construed to convey any licenses or rights under the XenoPort Patents with respect to any active pharmaceutical ingredient other than the Compound.

ARTICLE III

GOVERNANCE

     3.1 Executive Steering Committee.

     (a) Establishment. Within thirty (30) days following the HSR Clearance Date, XenoPort and GSK shall establish an Executive Steering Committee (“Executive Steering Committee” or “ESC”) to oversee, review and coordinate the activities of the Parties under this Agreement, including, the development of the Product for registration, and the marketing, commercialization and distribution of Products, in the Field in the Territory, subject to the provisions of this Article 3.

     (b) Duties. The ESC shall:

          (i) Review and approve material changes to the Development Plan;

          (ii) Review and approve material changes to the Commercialization Plan for the United States in the event that XenoPort has exercised the Co-Promotion Option as provided in Section 5.2(a);

          (iii) Review the Commercialization Plan for each Major Market country (including, in the event that XenoPort has not exercised the Co-Promotion Option as provided in Section 5.2(a), the United States);

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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          (iv) Provide a forum for the Parties to exchange information and coordinate their respective activities with respect to matters pertaining to the development, manufacture, marketing and distribution of the Products in the Territory, and matters pertaining to Regulatory Filings for the Product in the Territory;

          (v) Provide a forum for resolving matters to be decided by the JDC or JCC under this Agreement;

          (vi) Provide a forum to review with XenoPort decisions by GSK regarding material development, regulatory, manufacturing and commercial matters pertaining to the Product in the Territory that are not decided by the JDC or the JCC; and

          (vii) Perform such other duties as are specifically assigned to the ESC in this Agreement.

     (c) Subcommittees. From time to time, the ESC may establish subcommittees to oversee particular projects or activities within the scope of authority of the ESC, as it deems necessary or advisable (each, a “Subcommittee”). Each Subcommittee shall consist of such number of representatives of each Party as the ESC determines is appropriate from time to time. Each Subcommittee shall meet with such frequency as the ESC shall determine. Each Subcommittee shall operate by unanimous vote in all decisions, with each Party having one (1) vote and with at least one (1) representative from each Party participating in such vote. If, with respect to a matter that is subject to a Subcommittee’s decision-making authority, the Subcommittee cannot reach unanimity, the matter shall be referred to the ESC, which shall resolve such matter in accordance with Section 3.6.

     3.2 Joint Development Committee.

     (a) Establishment. Within thirty (30) days following the HSR Clearance Date, GSK and XenoPort shall establish a joint development committee (“Joint Development Committee” or “JDC”) to plan, oversee and coordinate the conduct of the development activities for the Product in the Territory.

     (b) Duties. The JDC shall:

          (i) Subject to oversight by the ESC, determine the Development Plan in accordance with Section 4.1;

          (ii) Subject to and within the parameters of the Development Plan:

               (A) Oversee the implementation of the Development Plan, allocate responsibilities to each Party in connection with executing the Development Plan and review each Party’s execution of its responsibilities under the Development Plan (including review of the clinical trials conducted by each Party pursuant to the Development Plan); and

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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               (B) Approve certain regulatory matters as provided in Section 4.7 below;

          (iii) Present any proposed revisions or amendments to the Development Plan, and the results of development efforts, to the ESC as needed, but no less frequently than once each calendar half-year;

          (iv) Oversee XenoPort’s conduct of the Clinical Studies and Activities; and

          (v) Perform such other duties as are specifically assigned to the JDC in this Agreement or delegated to the JDC by the ESC.

     3.3 Joint Commercialization Committee.

     (a) Establishment. Within thirty (30) days after XenoPort’s election to exercise its Co-Promotion Option under Section 5.2(a) below, GSK and XenoPort shall establish a joint commercialization committee (“Joint Commercialization Committee” or “JCC”) to oversee the conduct of the commercialization, marketing and Co-Promotion activities for Products in the United States.

     (b) Duties. The JCC shall:

          (i) Subject to oversight by the ESC, review and approve the Commercialization Plan for the United States developed by GSK in accordance with Section 5.1(b);

          (ii) Review and approve the Co-Promotion Plan developed in accordance with Sections 5.2(b) and 5.2(c); and

          (iii) Perform such other duties as are specifically assigned to the JCC in this Agreement or delegated to the JCC by the ESC.

     3.4 Committee Membership.

     (a) Membership. Subject to Section 3.4(b), the ESC, JDC and JCC (each, a “Committee”) shall each be composed of an equal number of representatives from each of GSK and XenoPort, selected by such Party. Unless the Parties otherwise agree, the exact number of representatives for each of GSK and XenoPort shall be: (a) with respect to the ESC, subject to Section 3.4(b), two (2) representatives, at least one (1) of whom shall be [... * ...], or a delegate of such [... * ...] (or representative of [... * ...]); provided that such delegate shall [... * ...]; and (b) with respect to the JDC and the JCC, three (3) representatives, at least one (1) of whom shall [... * ....], or a delegate of such [... * ...] (or representative of [... * ...]); provided that such delegate shall be [... * ...]. Either Party may replace its respective Committee representatives at any time with prior written notice to the other Party; provided that the criteria for composition of each Committee set forth in the preceding sentence continues to be satisfied following any such

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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replacement of a Party’s representative on any such Committee. Each Committee will be chaired by a GSK representative and GSK may, from time to time and in its sole discretion, change the representative who serves as the chairperson on any Committee with prior written notice to XenoPort.

     (b) Withdrawal from Committees. At any time during the Term and for any reason, XenoPort shall have the right to withdraw from participation in the Committees upon written notice to GSK, which notice shall be effective immediately upon receipt (“Withdrawal Notice”). Following the issuance of a Withdrawal Notice and subject to this Section 3.4(b), XenoPort’s representatives to the Committees shall not participate in any meetings of the Committees, nor shall XenoPort have any right to vote on decisions within the authority of the Committees. If, at any time, following the issuance of a Withdrawal Notice, XenoPort wishes to resume participation in the Committees, XenoPort shall notify GSK in writing and, thereafter, XenoPort’s representatives to the Committees shall be entitled to attend any subsequent meeting of the Committees and to participate in the activities of, and decision-making by, the Committees as provided in this Article 3 as if a Withdrawal Notice had not been issued by XenoPort pursuant to this Section 3.4(b). Following XenoPort’s issuance of a Withdrawal Notice pursuant to this Section 3.4(b), unless and until XenoPort resumes participation in the Committees in accordance with this Section 3.4(b): (i) all meetings of the Committees shall be held at GSK’s facilities; (ii) GSK shall have the right to make the final decision on all matters within the scope of authority of the Committees; and (iii) XenoPort shall have the right to continue to receive the minutes of Committee meetings, but shall not have the right to approve the minutes for any Committee meeting held after XenoPort’s issuance of a Withdrawal Notice.

     3.5 Committee Meetings. The ESC shall meet at least once each calendar half-year, or more or less often as otherwise agreed to by the Parties. The JDC and, from and after such time as is appropriate, the JCC shall meet at least once each calendar quarter, or more or less often as otherwise agreed to by the Parties. All Committee meetings may be conducted by telephone, video-conference or in person as determined by the applicable Committee; provided, however, that each Committee shall meet in person at least twice each calendar year, unless the Parties mutually agree to meet by alternative means. Unless otherwise agreed by the Parties, all in-person meetings for each Committee shall be held on an alternating basis between XenoPort’s facilities and GSK’s facilities. Each Party shall bear its own personnel and travel costs and expenses relating to Committee meetings. With the consent of the Parties (not to be unreasonably withheld or delayed), other employee representatives of the Parties may attend any Committee meeting as non-voting observers. Minutes of each Committee meeting will be prepared by the chairperson and distributed to the members of the applicable Committee for review and comment within twenty (20) days after each meeting of the applicable Committee, and will be approved as the first order of business at the immediately succeeding Committee meeting.

     3.6 Decision-Making. Subject to Section 3.4(b), decisions of each Committee shall be [... * ...]. In the event the JDC or the JCC [... * ...] with respect to a particular matter within its authority, then upon request by either Party such matter shall be referred to the ESC for

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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resolution. In the event that the ESC [... * ...] with respect to a particular matter [... * ...] as requested by [... * ...]. The Parties’ [... * ...] to resolve such matter; provided, however that with respect to [... * ...]. If, [... * ...] are unable to resolve such matter [... * ...].

     3.7 Alliance Managers. Within thirty (30) days following the HSR Clearance Date, each Party shall appoint a representative (“Alliance Manager”) to facilitate communications between the Parties (including coordinating the exchange of Data and Know-How of each Party as required under this Agreement) and to act as a liaison between the Parties with respect to such other matters as the Parties may mutually agree in order to maximize the efficiency of the collaboration. Each Party may replace its Alliance Manager with an alternative representative satisfying the requirements of this Section 3.7 at any time with prior written notice to the other Party.

     3.8 Scope of Governance. Notwithstanding the creation of the ESC, JDC and JCC, each Party shall retain the rights, powers and discretion granted to it hereunder, and no Committee shall be delegated or vested with rights, powers or discretion unless such delegation or vesting is expressly provided herein, or the Parties expressly so agree in writing. No Committee shall have the power to amend or modify this Agreement, and no decision of any Committee shall be in contravention of any terms and conditions of this Agreement. It is understood and agreed that issues to be formally decided by the ESC, JDC and JCC, as applicable, are only those specific issues that are expressly provided in this Agreement to be decided by the ESC, JDC and JCC, as applicable.

ARTICLE IV

DEVELOPMENT AND REGULATORY ACTIVITIES

     4.1 Development Plans.

     (a) Initial Development Plan. An initial development plan for the collaboration is attached to this Agreement as Exhibit 4.1 (“Development Plan”) and sets out separately the development activities to be conducted by each Party. Within [... * ...] the HSR Clearance Date, the JDC shall review and finalize the details of the Development Plan, which shall be consistent with the Development Plan in Exhibit 4.1.

     (b) Changes to a Development Plan. The JDC shall review the Development Plan on an ongoing basis, and in no event less frequently than [... * ...]. The JDC may propose to the ESC revisions to the then-current Development Plan; provided, however, the [... * ...].

     4.2 Development Activities of GSK.

     (a) Conduct of Development Activities. Except as provided in Section 4.3 below, GSK shall, at its expense, use Commercially Reasonable Efforts to carry out all clinical development and other activities required to obtain Marketing Approvals for the Product in the Territory. GSK

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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shall carry out all such activities in accordance with the then-current Development Plan and the provisions of this Agreement.

     (b) Diligence. GSK shall use Commercially Reasonable Efforts to achieve the goals of the then-current Development Plan in accordance with the timelines specified therein and to realize the commercial opportunity for the Product in other indications.

     4.3 Development Activities of XenoPort.

     (a) Conduct of Development Activities. Except as otherwise mutually agreed, XenoPort shall, at its expense and with oversight by the JDC, continue to conduct the Existing Phase III Studies and those other clinical studies and activities listed on Exhibit 4.3 to this Agreement (collectively, the “Clinical Studies and Activities”). XenoPort shall make reasonable modifications to the protocols for such Clinical Studies and Activities, as requested by GSK from time to time; provided, however, that [... * ...]. Notwithstanding the foregoing, [... * ...] Existing Phase III Study [... * ...] of such modifications. In addition, XenoPort shall [... * ...] Clinical Studies and Activities [... * ...] Existing Phase III Studies, [... * ...].

     (b) Diligence. XenoPort shall use Commercially Reasonable Efforts to conduct and complete the Clinical Studies and Activities in order to achieve the goals of the then-current Development Plan in accordance with the timelines specified therein.

     4.4 Change in Formulation. Before [... * ...], GSK shall discuss the proposed [... * ...] with XenoPort at the ESC and [... * ...]. Subject to the foregoing, XenoPort agrees that GSK may [... * ....] that were so discussed [... * ...] by the ESC.

     4.5 Conduct of Activities. Each Party shall conduct those activities allocated to such Party under the Development Plan in compliance in all material respects with all Applicable Laws and in accordance with good scientific and clinical practices, applicable under the Applicable Law of the country in which such activities are conducted.

     4.6 Regulatory Matters.

     (a) Assignment of Regulatory Filings. At a reasonable time [... * ...], XenoPort shall assign or cause to be assigned to GSK all Regulatory Filings for the Compound in the Territory; provided, however, that, [... * ...] XenoPort shall maintain [... * ...]. Notwithstanding the foregoing, it is understood that XenoPort may [... * ...] and/or [... * ...] provided that [... * ...] For such purposes, [... * ...] at which XenoPort [... * ...].

     (b) Responsibility for Regulatory Filings. Except for [... * ...], GSK shall be responsible, at its expense, for filing, obtaining and maintaining all Regulatory Filings for the Compound and each Product in the Territory. [... * ...]. GSK shall also obtain any export approvals required by the FDA to import or export the Product to any country within the Territory. All such

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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filings will be in the name of GSK, except where otherwise required by Applicable Law in any country within the Territory.

          4.7 Regulatory Cooperation. [... * ...], GSK shall be responsible for liaising with and managing all interactions with Regulatory Authorities in the Territory, including with respect to all Regulatory Filings for Product in the Territory, other than [... * ...], and XenoPort shall be entitled to participate in such interactions as provided in this Section 4.7.

          (a) Involvement of XenoPort. To the extent relating to the Product within the [... * ...] or [... * ...], GSK shall provide XenoPort with:

               (i) reasonable advanced notice [... * ...] of substantive meetings with the [... * ...] that are either scheduled with, or initiated by or under the authority of, GSK or its Affiliates;

               (ii) an opportunity to have [... * ...] representatives attend, and [... * ...], all substantive meetings with [... * ...]; and in any case, GSK shall keep the JDC informed as to all material interactions with Regulatory Authorities; and

               (iii) a copy of any material documents, information and correspondence submitted to [... * ...] relating to Regulatory Filings for the Product as soon as reasonably practicable, together with English translations and summaries thereof, to the extent such translations and summaries exist.

     The JDC shall approve the overall strategy and positioning of all [... * ...] Regulatory Filings with [... * ...], based upon reasonably detailed reports and summaries of such submissions and filings presented to the JDC by GSK. In connection with such review, [... * ...].

          (b) Involvement by GSK. With respect to the Regulatory Filings maintained by XenoPort under Section 4.6(a) and Regulatory Filings relating to the trials permitted to be conducted by XenoPort in the Territory under Section 2.3(b) above, XenoPort shall provide GSK with:

               (i) reasonable advanced notice [... * ...] of substantive meetings with the [... * ...] that are either scheduled with, or initiated by or under the authority of, XenoPort or its Affiliates relating to such Regulatory Filings;

               (ii) an opportunity to have [... * ...] representatives attend, and [... * ...], all substantive meetings with [... * ...] relating to such Regulatory Filings; and in any case, XenoPort shall keep the JDC informed as to all material interactions with Regulatory Authorities relating to such Regulatory Filings; and

               (iii) a copy of any material documents, information and correspondence submitted to [... * ...] relating to such Regulatory Filings as soon as reasonably practicable, together with English translations and summaries thereof, to the extent such translations and summaries exist.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (c) Assistance by XenoPort. XenoPort will provide reasonable cooperation and assistance to GSK in the event that GSK must respond to questions from Regulatory Authorities in the Territory concerning development activities conducted by or on behalf of XenoPort with the Compound or Product, including the Clinical Studies and Activities.

     (d) Other Regulatory Matters. Each Party will promptly provide the other Party with copies of all material documents, information and correspondence received from a Regulatory Authority (including a written summary of any material communications in which such other Party did not participate) within the Territory and, upon reasonable request, with copies of any other documents, reports and communications from or to any Regulatory Authority within the Territory relating to the Compound, the Product and/or activities under this Agreement.

     4.8 Exchange of Data and Know-How.

     (a) By XenoPort. Promptly following the HSR Clearance Date, XenoPort will make available to GSK, at no cost or expense to GSK, all XenoPort Know-How that is necessary, or materially useful, for GSK to develop and/or commercialize the Compound and Products in the Territory, including all Data from any and all clinical trials (including the Clinical Studies and Activities) and preclinical studies and non-clinical development work for the Compound and Products that have been obtained by XenoPort as of the Effective Date.

     (b) By Either Party. During the Term, each Party shall provide to the other Party all such Party’s Know-How (i.e., in case of XenoPort, XenoPort Know-How, and in the case of GSK, all GSK Know-How) and that has not previously been provided hereunder, in each case promptly upon request by the other Party. The Party providing such Party’s Know-How shall provide the same in electronic form to the extent the same exists in electronic form, and shall provide copies as reasonably requested and an opportunity for the other Party or its designee to inspect (and copy) all other materials comprising such Know-How (including for example, original patient report forms and other original source data). The Parties will cooperate and reasonably agree upon formats and procedures to facilitate the orderly and efficient exchange of the XenoPort Know-How and the GSK Know-How. [... * ...]; provided that [... * ...] or [... * ...]. For the avoidance of doubt, [... * ...]. Accordingly, and consistent with the proviso in the fourth sentence of this Section 4.8(b), XenoPort shall [... * ...].

     (c) Provision of Data to JDC. Upon request by the JDC, each Party shall promptly provide the JDC with summaries in reasonable detail of all Data generated or obtained in the course of such Party’s performance of activities under a Development Plan.

     4.9 Sharing of Regulatory Filings. Without limiting Section 4.8 above, each Party shall permit the other to access, and shall provide the other Party with sufficient rights to reference and use in association with exercising its rights and performing its obligations under this Agreement [... * ...], all of such Party’s, its Affiliates’ and, to the extent it has the right to do so, its Sublicensees’ Data, Regulatory Filings and regulatory communications associated with any

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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submissions of MAAs or other approvals for the Product respectively in the Territory. Without limiting the foregoing, XenoPort shall permit GSK to access and shall provide GSK with sufficient rights to reference and use, in support of MAAs filed and Marketing Approvals received by or on behalf of GSK, the IND of XenoPort for the Compound in the Territory. Notwithstanding the foregoing, GSK shall be obligated to [... * ...].

     4.10 Inspection Right.

     (a) Inspection by Astellas. To the extent any Regulatory Authority [... * ...] requests an audit of the clinical trial sites and, if GSK supplies Compound or Product to Astellas during the Term, manufacturing sites in the Territory [... * ...], GSK shall permit such Regulatory Authority [... * ...] to enter the all relevant clinical trial sites and, if applicable, manufacturing sites of GSK and its Affiliates during normal business hours and upon reasonable advance notice to inspect and verify compliance with applicable regulatory requirements. GSK shall, at XenoPort’s expense, provide reasonable assistance for a full and correct carrying out of the inspection. Such inspection shall not relieve GSK of any of its obligations under this Agreement.

     (b) Diligence. GSK shall use Commercially Reasonable Efforts to secure the rights set forth in Section 4.10(a) from GSK’s Sublicensees, trial sites and other contractors for the Product. In the event GSK is unable to secure such inspection rights from any of its Sublicensees, trial sites or contractors, GSK agrees to secure such rights for itself and [... * ...] GSK shall exercise such rights [... * ...] and fully report the results thereof to XenoPort and Astellas.

     4.11 Clinical Trial Register. Notwithstanding anything in this Agreement to the contrary, including Article XI, GSK shall have the right to publish in its clinical trial register the results or summaries of the results of all clinical trials for the Compound and Products conducted: (a) by either Party in the Territory pursuant to this Agreement; and (b) by [... * ...] provided, however, that [... * ...]. The Parties will discuss the process for [... * ...].

     4.12 Reporting; Adverse Drug Reactions.

     (a) Pharmacovigilance Agreement. Within ninety (90) days after the HSR Clearance Date, the Parties shall enter into a pharmacovigilance agreement on terms no less stringent than those required by ICH guidelines, including: (i) providing detailed procedures regarding the maintenance of core safety information and the exchange of safety data relating to the Compound and the Products for the Territory within appropriate timeframes and in an appropriate format to enable each Party to meet both expedited and periodic regulatory reporting requirements; and (ii) ensuring compliance with the reporting requirements of all applicable Regulatory Authorities on a worldwide basis for the reporting of safety data in accordance with standards stipulated in the ICH Guidelines, and all applicable regulatory and legal requirements regarding the management of safety data.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (b) Adverse Event Reporting. As between the Parties: (i) XenoPort shall be responsible for [... * ...] (ii) GSK shall be responsible for [... * ...] and (iii) XenoPort or Astellas shall be responsible for [... * ...] all in accordance with the Applicable Laws of the relevant countries and regulatory authorities. GSK shall ensure that its Affiliates and Sublicensees comply with such reporting obligations in the Territory, and XenoPort [... * ...]

     (c) Global Safety Database. GSK shall maintain the global safety database with respect to the Product for the Territory and [... * ...] XenoPort agrees to [... * ...] enable GSK to maintain such global safety database for [... * ...].

ARTICLE V

COMMERCIALIZATION AND PROMOTION

     5.1 GSK Commercialization of Product.

     (a) GSK’s Responsibility. Except as provided below, GSK shall have sole responsibility for the commercialization, distribution, marketing and promotion of the Products in the Field in the Territory. Further, regardless of whether XenoPort exercises the Co-Promotion Option as provided in Section 5.2 below, during the Term, GSK will have the exclusive right and responsibility in the Territory for the following:

          (i) establishing pricing and reimbursement for Product;

          (ii) managed care contracting for Product;

          (iii) receiving, accepting and filling orders for Product from customers;

          (iv) distributing Product to customers;

          (v) controlling invoicing, order processing and collecting accounts receivable for sales of Product; and

          (vi) recording sales of Product in the Territory in its books of account for sales.

     (b) Commercialization Plan. At least [... * ...], GSK shall prepare [... * ...] a plan setting forth the strategic plan for the marketing, promotion and commercialization of the Products in such [... * ...], which plan shall be in reasonable scope and detail (the “Commercialization Plan”); provided, however, that [... * ...]; provided further that [... * ...] with respect thereto, [... * ...]. Each Commercialization Plan for [... * ...] shall be presented by GSK to the ESC or the JCC [... * ....], as applicable. The ESC and the JCC [... * ...] shall review the Commercialization Plans for [... * ....] on an ongoing basis, and in no event less frequently than once each calendar year. Subject to Section 5.2, GSK shall carry out all marketing, promotion and

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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commercialization of the Products in the Territory in accordance with the then-current Commercialization Plan and the provisions of this Agreement.

     5.2 Co-Promotion Option of XenoPort.

     (a) Exercise of Co-Promotion Option. XenoPort shall have a non-sublicensable option to Co-Promote the Product with GSK in the United States (“Co-Promotion Option”) in accordance with the terms and conditions of this Article 5. To facilitate such Co-Promotion Option, GSK shall notify XenoPort of its right to exercise the Co-Promotion Option [... * ...]. To exercise the Co-Promotion Option, XenoPort shall notify GSK in writing [... * ...]; provided that [... * ....]. In the event that XenoPort exercises the Co-Promotion Option as provided in this Section 5.2(a), XenoPort will have an exclusive right to Co-Promote and Detail the Product with GSK in the United States until [... * ...]. In the event that XenoPort does not exercise the Co-Promotion Option as provided in this Section 5.2(a) or if XenoPort does not provide written notice to GSK that it is exercising the Co-Promotion Option [... * ...], XenoPort will have no right to Co-Promote or Detail the Product with GSK in the United States, and GSK will have no further obligation with respect to the Co-Promotion Option.

     (b) Co-Promotion Plan. In the event that XenoPort exercises the Co-Promotion Option, GSK shall prepare, in consultation with XenoPort and the JCC, the tactical plan for promoting and marketing the Product in the United States, consistent with the Commercialization Plan for the United States (“Co-Promotion Plan”), which shall be reviewed and approved by the JCC [... * ....]. The Co-Promotion Plan shall set out in reasonable detail: (i) [... * ...] in connection with the Co-Promotion [... * ...] (ii) [... * ...] (iii) [... * ...] and (iv) [... * ...].

     (c) Changes to the Co-Promotion Plan. After the submission of the initial Co-Promotion Plan, the JCC shall review and amend if necessary the Co-Promotion Plan on an ongoing basis and in no event less frequently than [... * ...].

     (d) Sales Efforts.

          (i) The Parties shall each use Commercially Reasonable Efforts to Co-Promote and Detail the Product in the United States pursuant to the terms and conditions hereof and the then-current Co-Promotion Plan. The JCC will agree upon and monitor each Party’s Co-Promotion and Detailing activities for each Co-Promotion Year. “Co-Promotion Year” shall mean, for the calendar year in which the Parties are first engaged in Co-Promotion, the portion of the calendar year remaining beginning upon the date of the First Commercial Sale in the United States, and shall mean the relevant January 1 through December 31 calendar year, or pro rata portion thereof, for all subsequent calendar years until the expiration or earlier termination of XenoPort’s right to Co-Promote the Product as provided herein.

          (ii) During any Co-Promotion Year, XenoPort shall use Commercially Reasonable Efforts to [... * ....] the Co-Promotion Plan approved by the JCC [... * ...].

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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          (iii) The Co-Promotion Plan approved by the JCC for each Co-Promotion Year shall: (A) specify [... * ...] to be provided [... * ...] the number of Sales Representatives [... * ...] (B) [... * ...] in a manner that ensures [... * ...] to be provided [... * ...] and (C) to the extent [... * ...] Sales Representatives that [... * ...].

     (e) Sales Efforts of XenoPort. At the time XenoPort exercises the Co-Promotion Option, it shall notify GSK of the number of Sales Representatives that XenoPort elects to deploy initially for the Product, provided that [... * ...]. Promptly after such exercise of the Co-Promotion Option, XenoPort will [... * ...] of Sales Representatives that XenoPort so elects, [... * ...] in accordance with the Co-Promotion Plan [... * ...]. XenoPort shall, as requested by GSK, within [... * ....]; provided that, subject to [... * ...] Sales Representatives that XenoPort deploys [... * ...]. In the event that XenoPort desires to increase the number of XenoPort Sales Representatives who Detail and Co-Promote Product [... * ...] in accordance with the Co-Promotion Plan, [... * ...] Co-Promoting and Detailing the Product as provided herein [... * ...]. In the event that GSK does not agree to using such Additional Sales Representatives in the Co-Promotion and Detailing of the Product, XenoPort will [... * ...].

     (f) Costs of Co-Promotion. If XenoPort exercises its Co-Promotion Option as provided in Section 5.2(a), the Parties shall [... * ...]. Notwithstanding the foregoing GSK shall [... * ...] in accordance with the Co-Promotion Plan [... * ...]. Such [... * ...].

     (g) Co-Promotion Coordination. GSK shall be responsible for developing the strategies and programs to carry out the Co-Promotion activities, including the assignment of sales activities in accordance with the Commercialization Plan for the United States and Co-Promotion Plan.

     5.3 Non-exclusive Right to Detail the REQUIP™ Products.

     (a) Commencement of Right to Detail the REQUIP™ Products. If XenoPort exercises the Co-Promotion Option for the Product, XenoPort shall also obtain a non-sublicensable, non-exclusive right to Detail the REQUIP™ Products in the United States on and from the date on which XenoPort exercises its Co-Promotion Option, to the extent such REQUIP™ Products are approved for commercialization in the United States. Such right shall continue until [... * ...]. If GSK (or its Affiliate) has not obtained the approvals required to commercialize the REQUIP™ Products in the United States at the time that XenoPort exercises the Co-Promotion Option, the Parties [... * ...].

     (b) The REQUIP™ Sales Plan. GSK shall prepare and determine, in consultation with XenoPort, the tactical plan for XenoPort’s Detailing of the REQUIP™ Products by XenoPort Sales Representatives in the United States (the “REQUIP™ Sales Plan”) and shall provide the REQUIP™ Sales Plan to XenoPort [... * ...]. The REQUIP™ Sales Plan shall set out in reasonable detail: (i) [... * ...] in connection with [... * ...] and (ii) [... * ...] under such REQUIP™ Sales Plan, [... * ...] and which is [... * ...]. XenoPort shall be entitled to dedicate a number of Sales

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Representatives elected by XenoPort, up to [... * ...], to Detail the REQUIP™ Products in the United States. XenoPort’s right to deploy such Sales Representatives shall commence [... * ...].

     (c) Coordination. GSK shall be responsible for developing strategies and programs to carry out in an optimal fashion Detailing activities of the Parties with respect to the REQUIP™ Products, including the assignment of Detailing activities in accordance with the REQUIP™ Sales Plan.

     (d) Reimbursement. GSK shall reimburse XenoPort for each Detail provided by the XenoPort Sales Representatives Co-Promoting the REQUIP™ Products in the United States in accordance with the REQUIP™ Sales Plan in an amount equal to: (i) [... * ...] and/or [... * ...] and (ii) [... * ...]. Such reimbursements shall be made to XenoPort [... * ...].

     (e) GSK’s Exclusive Responsibilities for the REQUIP™ Products. During the period that XenoPort is Detailing the REQUIP™ Products in the United States as provided herein, GSK will have the exclusive right and responsibility in the United States for the following:

          (i) establishing pricing and reimbursement for the REQUIP™ Products;

          (ii) managed care contracting for the REQUIP™ Products;

          (iii) receiving, accepting and filling orders for the REQUIP™ Products from customers;

          (iv) distributing the REQUIP™ Products to customers;

          (v) controlling invoicing, order processing and collecting accounts receivable for sales of the REQUIP™ Products;

          (vi) all marketing and promotion activities relating to the REQUIP™ Products other than Detailing; and

          (vii) recording sales of the REQUIP™ Products in the Territory in its books of account for sales.

     5.4 XenoPort Sales Representatives.

     (a) Qualifications. All XenoPort Sales Representatives Co-Promoting and Detailing Product and/or Detailing the REQUIP™ Products shall be required to have comparable educational qualifications and experience as GSK requires for its own Sales Representatives. Such XenoPort Sales Representatives shall be subject to a reasonable proficiency examination relevant to the Product or the REQUIP™ Products in the same manner as GSK’s Sales Representatives.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (b) No Contract Sales Force. XenoPort shall not be permitted to use a contract sales force to fulfill its Co-Promotion and Detailing responsibilities with respect to the Product and/or Detailing responsibilities with respect to the REQUIP™ Products under this Agreement.

     (c) Training. GSK shall provide the same sales training on the Product and on the REQUIP™ Products for XenoPort Sales Representatives who will be Co-Promoting and Detailing the Product and/or promoting the REQUIP™ Products, as applicable, as the training on the Product and the REQUIP™ Products that GSK provides to its own Sales Representatives who promote and Detail the Product and/or the REQUIP™ Products, as applicable, in the United States. XenoPort shall be responsible for causing its Sales Representatives to attend and successfully complete the GSK training program prior to such Sales Representatives Co-Promoting and Detailing Product and/or Detailing the REQUIP™ Products in the United States. The Parties acknowledge and agree that in order for a XenoPort Sales Representative to be deemed to have successfully completed the training, such XenoPort Sales Representative must demonstrate thorough knowledge of the medical and technical aspects of the Product and/or the REQUIP™ Products, as applicable, the Applicable Commercial Practices Policies and must achieve scores on certifications for the Product and the REQUIP™ Products, as applicable, at similar rates to those required for GSK sales representatives who are Co-Promoting and Detailing the Product and/or Detailing the REQUIP™ Products, as applicable. XenoPort Sales Representatives will be entitled to attend those sections of national and regional sales or plan of action meetings for GSK Sales Representatives, except [... * ...]. The costs of such sales training for XenoPort Sales Representatives for the Product and attendance at meetings shall [... * ...].

     (d) Timing. XenoPort and GSK shall cooperate to have the XenoPort Sales Representatives hired and trained as provided in this Agreement prior to [... * ...].

     (e) Compensation and Bonus System for Sales Representatives. The Parties acknowledge that in order to attract and retain professional Sales Representatives, there may be a degree of discrepancy between the compensation and bonus incentive structure for GSK’s Sales Representatives and the compensation and bonus incentive structure for XenoPort’s Sales Representatives. To ensure consistency of efforts between the Sales Representatives of the Parties, each Party agrees that in designing such Party’s compensation and bonus incentive structure, each Party will give due consideration to the effect that such Party’s compensation and bonus structure may have on the other Party’s sales force, provided that [... * ...].

     (f) XenoPort Salaries and Wages. XenoPort acknowledges and agrees that it will be solely responsible for paying all salaries, wages, benefits and other compensation that its employees, including XenoPort Sales Representatives, may be entitled to receive in connection with providing services under this Agreement.

     (g) Support. Except as otherwise agreed, XenoPort shall be solely responsible for providing its own equipment, automobiles, offices and fixtures, working facilities, and such other facilities, services and support as may be required for XenoPort Sales Representatives Co-Promoting

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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and Detailing Product and/or Detailing the REQUIP™ Products as provided in this Agreement and pursuant to the Co-Promotion Plan or REQUIP™ Sales Plan, as applicable.

     (h) No Employment by GSK. For the avoidance of doubt, XenoPort Sales Representatives will not be, and will not be considered or deemed to be, employees of GSK for any purpose. GSK is engaging XenoPort hereunder, and XenoPort will perform its obligations hereunder, strictly as an “independent contractor.” Sales Representatives and any other employee or agent that is involved in performing XenoPort’s obligations under this Agreement (collectively, “Personnel”) will not be, and will not be considered or deemed to be, employees of GSK for any purpose. GSK will not have any responsibility for the hiring, termination, compensation, benefits or other conditions of employment or engagement of the Personnel of XenoPort.

     (i) GSK Benefit Plans. Personnel of XenoPort are not eligible to participate in any benefit programs offered by GSK to its employees, or in any pension plans, profit sharing plans, insurance plans or any other employee benefit plans offered from time to time by GSK to its employees. XenoPort acknowledges and agrees that GSK does not, and will not, maintain or procure any workers’ compensation or unemployment compensation insurance for or on behalf of the XenoPort’s employees, including, without limitation, XenoPort Sales Representatives. Personnel of XenoPort are not eligible to participate in any benefits programs offered by GSK to its employees, or in any pension plans, profit sharing plans, insurance plans or any other employee benefits plans offered from time to time by GSK to its employees.

     (j) Management of Sales Representatives. XenoPort will be responsible for supervising its Sales Representatives. In connection therewith, at all times that XenoPort is Co-Promoting and Detailing the Product and/or Detailing the REQUIP™ Products, XenoPort will provide a sufficient number of full time employees to serve as district managers. XenoPort may, but will not be obligated to, designate one (1) or more full time employees to serve as regional directors having the responsibility for supervising a group of its district managers in a particular geographic region of the United States. XenoPort will provide GSK with contact information for its district managers and regional directors, and will update that information periodically or as requested by GSK from time to time. XenoPort acknowledges and agrees that it comply with this Section 5.4 in the hiring and employment of all district managers and regional directors, and that the provisions in this Section 5.4 will apply to all such district managers and regional directors.

     5.5 Co-Promotion Agreement. Promptly following XenoPort’s exercise of its Co-Promotion Option for the Product in accordance with Section 5.2(a), for the purposes of permitting GSK to comply with its obligations under Applicable Law, GSK and XenoPort shall enter into a co-promotion agreement setting out such obligations of XenoPort, including with respect to the activities of its Sales Representatives, in the Co-Promotion and Detailing of the Product and the Detailing of the REQUIP™ Products and containing terms substantially similar to the terms set out on Exhibit 5 and which is consistent with the terms and conditions of this Agreement (“Co-Promotion Agreement”). Notwithstanding the foregoing, the obligations imposed on XenoPort, including with respect to the activities of its Sales Representatives, in the Co-Promotion and

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Detailing of the Product and the Detailing of the REQUIP™ Products, including the terms of the Co-Promotion Agreement to be executed by GSK and XenoPort as provided in this Section 5.5, shall be [... * ...]. It is understood that XenoPort may continue to exercise its rights under this Article 5 pending completion of such Co-Promotion Agreement, provided however, that [... * ...].

     5.6 Promotional Materials.

     (a) Subject to Article XIII, GSK will own all right, title and interest in and to all Promotional Materials during and after the Term, including any intellectual property rights (including Trademarks) in the Promotional Materials other than the XenoPort Trademarks.

     (b) The determination of the content of the Promotional Materials shall be the sole responsibility of GSK. The quantity and method of distribution of the Promotional Materials in the United States for the XenoPort Sales Representatives shall be as set forth in the Co-Promotion Plan or the REQUIP™ Sales Plan, as applicable.

     (c) With respect to the Co-Promotion of the Product, XenoPort will cause its Sales Representatives to utilize only the Promotional Materials relating to Product provided to them by GSK, and will not utilize any other promotional, advertising, educational or communication materials or other materials relating to or referring to the Product. With respect to the Detailing of the REQUIP™ Products, XenoPort Sales Representatives will utilize only the Promotional Materials relating to the REQUIP™ Products provided to them by GSK, and will not utilize any other promotional, advertising, educational or communication materials or other materials relating to or referring to the REQUIP™ Products. XenoPort Sales Representatives will conduct only those promotional and other sales activities relating: (i) to the Product that have been approved in advance in accordance with the Co-Promotion Plan; and (ii) to the REQUIP™ Products that have been approved in advance in accordance with the REQUIP™ Sales Plan. XenoPort Sales Representatives shall not modify, change or alter the Promotional Materials provided by GSK in any way whatsoever, without the express prior written consent of GSK. XenoPort Sales Representatives shall use such Promotional Materials solely for the purpose of performing their obligations under this Agreement.

     5.7 Reports and Audit Rights.

     (a) XenoPort will keep accurate records in sufficient detail of the XenoPort’s Sales Representatives’ Detailing activities relating to the Product and/or the REQUIP™ Products to determine the amounts owed by GSK to XenoPort hereunder. XenoPort shall keep such records regarding such Sales Representatives’ Detailing activities during the period during which XenoPort is Co-Promoting the Product and/or the REQUIP™ Products, as applicable, and for a period of [... * ...]

     (b) During normal business hours and with not less than [... * ...] advance written notice to XenoPort, XenoPort will permit GSK or its authorized representatives to (i) have

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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access to the records of XenoPort Sales Representative Detailing activities maintained by XenoPort for purposes of verifying the accuracy of the invoices presented by XenoPort hereunder, and (ii) audit such records; provided, however that [... * ...]. Any and all audits undertaken by GSK pursuant to this Section shall be performed [... * ...].

     5.8 Reimbursement. Within [... * ...], XenoPort shall submit to GSK a report containing an accounting of the Sales Representatives deployed by XenoPort in Co-Promoting and Detailing the Product and/or Detailing the REQUIP™ Products (as the case may be) in the United States and [... * ....]. Such reimbursements shall be made to XenoPort [... * ...]. The amount of such reimbursement shall be as specified in Section 5.2(f) or 5.3(d), as applicable.

     5.9 XenoPort and GSK Right to Terminate.

     (a) XenoPort Termination Right. After XenoPort has exercised the Co-Promotion Option, XenoPort shall have the right to terminate its Co-Promotion of the Product and/or of the REQUIP™ Products, respectively, and the sharing of Operating Profit or Loss under Section 6.5 below, upon [... * ...].

     (b) GSK Termination Right.

          (i) As to the Product. After XenoPort has exercised the Co-Promotion Option, GSK shall have the right to terminate XenoPort’s right to Co-Promote and Detail the Product: (A) [... * ....] in accordance with the Co-Promotion Plan) [... * ...] and/or (B) [... * ...] with respect to [... * ...].

          (ii) As to the REQUIP™ Products. After XenoPort has exercised the Co-Promotion Option, GSK shall have the right to [... * ...] terminate XenoPort’s right to Detail the REQUIP™ Products upon [... * ...].

          (iii) Sole Remedy. GSK’s rights under this Section 5.9(b) to terminate XenoPort’s right to Co-Promote and Detail the Product and/or to terminate XenoPort’s right to Detail the REQUIP™ Products shall be GSK’s sole remedy with respect to [... * ...] In addition, termination of the Co-Promotion Agreement by GSK for XenoPort’s material breach of such agreement will not constitute grounds for GSK to terminate this Agreement pursuant to Section 14.2.

     (c) Extension of the REQUIP™ Products Detailing. GSK shall notify XenoPort, [... * ...] as to whether GSK elects to terminate XenoPort’s Detailing of the REQUIP™ Products at [... * ....]. If GSK does not so notify XenoPort, XenoPort’s right to Detail the REQUIP™ Products will continue [... * ...].

     (d) Mutual Termination. The Parties may mutually agree to terminate XenoPort’s right to Co-Promote and Detail the Product and/or Detail the REQUIP™ Products, respectively, at any time.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (e) Consequences of Termination of Product. Upon termination of XenoPort’s right to Co-Promote the Product pursuant to Section 5.9(a), Section 5.9(b)(i), Section 5.9(d) or Section 9.1(a): (i) XenoPort shall [... * ...] (ii) [... * ...] with respect to the Product [... * ...] in accordance with [... * ...] in accordance with [... * ...] (iii) XenoPort shall [... * ...] and (iv) XenoPort shall [... * ....] with respect to Product [... * ...].

     (f) Consequences of Termination of the REQUIP™ Products. Upon termination of XenoPort’s right to Detail the REQUIP™ Products pursuant to Section 5.9(a), Section 5.9(b)(ii), Section 5.9(d) or Section 9.1(b), XenoPort shall [... * ...].

ARTICLE VI

PAYMENTS

     6.1 Initial License Fee. GSK shall pay to XenoPort an initial license fee in the amount of Seventy Five Million Dollars ($75,000,000) within five (5) days following the HSR Clearance Date in accordance with the payment provisions of Article 7. The initial license fee set forth in this Section shall not be refundable or creditable against any future milestone payments, royalties or other payments by GSK to XenoPort under this Agreement.

     6.2 Milestone Payments.

     (a) Milestone Payments. In addition, GSK shall pay to XenoPort the milestone payments set out below following the first achievement by GSK, or any of its Affiliates or Sublicensees, of the corresponding milestone set out below, in accordance with this Section 6.2 and the payment provisions in Article 7:

Milestone Event	Milestone Payment
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Milestone Event	Milestone Payment
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]

     (b) Skipped Milestone Payment. If: (i) [... * ...] to the achievement of [... * ...] in respect of which [... * ...] shall be [... * ...] and/or [... * ...] as applicable [... * ...] the achievement of [... * ...] in this Section 6.2(b) [... * ...] and the milestone payment due upon the achievement of [... * ....] in this Section 6.2(b) [... * ...] or (ii) [... * ...] the achievement of [... * ...] and the corresponding milestone payment of [... * ...] in Section 6.2(a) [... * ...] then GSK shall [... * ...] the achievement of [... * ...] achievement of [... * ...] If, [... * ...] the achievement of [... * ...] and/or [... * ...] this Section 6.2(b) [... * ...] specified in this Section 6.2(b), [... * ...] the achievement of [... * ...] and/or [... * ...] this Section 6.2(b) [... * ...] otherwise [... * ...].

     (c) Definitions. For the purposes of the milestone payments due under Section 6.2(a):

          (i) [... * ...] (A) any of the following, [... * ...] in the context of [... * ...] as applicable: [... * ....] mutually agreed by the Parties; provided that, [... * ...] of the [... * ...] as applicable, and [... * ...] of such [... * ...] and in the event [... * ...] other than [... * ...] this Section 6.2, [... * ...] until the Parties mutually agree [... * ...]

          (ii) [... * ...] as provided in [... * ...] shall be [... * ...] of the [... * ...] together with [... * ...]

          (iii) [... * ...] as to [... * ...] above, the achievement of [... * ...] against which [... * ...] in the [... * ...] and/or [... * ...] that is [... * ...] than such [... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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          (iv) [... * ...] as to [... * ...] above, receipt [... * ...] the Product [... * ...] that would [... * ...] and/or [... * ...] that is [... * ...] than such [... * ...].

          (v) [... * ...] as required by the protocol for such trial, by the [... * ...] in such [... * ...].

          (vi) [... * ...] as provided in [... * ...] above, shall mean achievement of [... * ...] the Product [... * ....] and/or [... * ...] than such [... * ...] for which [... * ...] by the Parties.

          (vii) [... * ...] as provided in [... * ...] above, shall mean [... * ...] the Product [... * ...] of the [... * ....].

     (d) Reports and Payments. GSK shall notify XenoPort in writing promptly, but [... * ...] the achievement of [... * ...]. Any milestone payable by GSK pursuant to this Section 6.2 shall be made no more than once with respect to the achievement of each milestone set out in Section 6.2(a) by GSK, its Affiliates or Sublicensees, and in no event shall the aggregate amount to be paid by GSK under this Section 6.2 exceed Five Hundred Sixty-Five Million Dollars ($565,000,000.00). For the avoidance of doubt, the milestone payments set forth in this Section 6.2 shall not be refundable and shall not be creditable against future milestone payments, royalties or other payments to XenoPort under this Agreement.

     6.3 Royalty Payments.

     (a) U.S. Royalty Rate. Subject to the terms and conditions of this Agreement (including Section 6.4), in further consideration of the rights granted to GSK under this Agreement, GSK shall pay to XenoPort royalties at the rate set out below on Net Sales of Products in the United States in the event that XenoPort shall not elect the Co-Promotion Option in the United States (or the Co-Promotion terminates, as provided in Section 5.9 above) or in the event that XenoPort’s rights to Co-Promote the Product are terminated for any reason:

Annual Net Sales of Product in the United States	Royalty Rate
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (b) Ex-U.S. Royalty Rate. Subject to the terms and conditions of this Agreement (including Section 6.4), in further consideration of the rights granted to GSK under this Agreement, GSK shall pay to XenoPort royalties at the rate set out below on Net Sales of Products in the Territory outside the United States:

Annual Net Sales of Product in the Territory outside the U.S.	Royalty Rate
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]
[... * ...]	[... * ...]

     (c) Reports and Royalty Payment. Within [... * ...], GSK shall send to XenoPort a written report with respect to the preceding calendar quarter, stating the gross invoiced sales for Product, a top-line summary of the deductions specified in Section 1.33 taken from gross sales and the Net Sales, in each case on a country-by-country basis, during such calendar quarter in United States dollars (each, a “Payment Report”). In each country where Net Sales have occurred in a currency other than United States dollars, such Net Sales will be converted to United States dollars at the end of the applicable calendar quarter in accordance with Section 7.2. Royalties will be calculated based on the Payment Report. GSK shall pay the appropriate royalties set forth in the Payment Report within [... * ...].

     (d) No Separate Patent Royalties. It is understood that the royalties to be paid under this Section 6.3 are in consideration of the XenoPort Know-How, commercial opportunities and other undertakings of XenoPort provided in this Agreement, and that no separate royalty is due with respect to the XenoPort Patents.

     6.4 Certain Reductions to Royalties.

     (a) Third Party Royalties. In the event GSK or its Affiliates pays to a Third Party royalties under agreements for patent rights that cover the composition of matter or therapeutic use of the Compound, or that cover all feasible methods to manufacture the Compound (“Third Party Royalties”), which GSK reasonably believes [... * ...] then GSK [... * ...] with respect to [... * ....] pursuant to [... * ...]. For such purposes, [... * ...].

     (b) Patent Litigation Expenses. XenoPort acknowledges and agrees that GSK may [... * ...] or [... * ...] as provided [... * ...] pursuant to [... * ...] provided that [... * ...] (i) [... * ...] as a result of [... * ...] or [... * ...] in connection therewith; and (ii) [... * ...] XenoPort shall [... * ...].

     (c) Generic Competition. On a country-by-country and Product-by-Product basis,

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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if: (A) one or more Generic Products are being marketed for an approved indication of the Product in such country; and (B) such Generic Product(s) represent a total unit volume of [... * ...] in any calendar quarter determined by [... * ...] during such in such calendar quarter [... * ...] (“Generic Competition”), and GSK reasonably determines that it is not likely to recover such lost market share, then the royalties payable pursuant to Sections 6.3 with respect to such Product sold in such country for such quarter shall thereafter be reduced by [... * ...]; provided however that if such Generic Competition continues for a period of [... * ...], then upon the date that is on the [... * ...] of the initiation of such Generic Competition, GSK shall no longer be required to pay royalties to XenoPort with respect to such Product in such country. “Generic Product” shall mean a [... * ...] being sold hereunder in such country [... * ...].

     6.5 Cost-Profit Sharing in the United States. If XenoPort exercises the Co-Promotion Option for the Product in the United States, then in lieu of the royalties specified in Section 6.3(a) with respect to Net Sales in the United States, the Parties shall share Operating Profit or Loss (as defined in Exhibit 6.5) in the United States as provided in this Section 6.5.

     (a) Co-Promotion Expenses. After XenoPort’s exercise of the Co-Promotion Option, those expenses outlined in Exhibit 6.5 shall be allocated to the Joint P&L calculated under Section 6.5(c).

     (b) Allocation of Operating Profit or Loss. In consideration for each Party’s efforts pursuant to the Co-Promotion Plan in the United States, for each calendar quarter, GSK shall be entitled to the following percentage of the Operating Profit or Loss for such quarter and XenoPort shall be entitled to following percentage of the Operating Profit or Loss for such quarter, such amounts to be distributed to the Parties pursuant to Section 6.5(c):

[... * ...]	GSK’s Share of	XenoPort’s
	Operating Profit	Share of
	or Loss	Operating Profit
		or Loss
[... * ...]	[... * ...]	[... * ...]
[... * ...]	[... * ...]	[... * ...]
[... * ...]	[... * ...]	[... * ...]
[... * ...]	[... * ...]	[... * ...]

     (c) Joint P&L. Within [... * ...], XenoPort shall furnish to GSK a statement setting forth its year-to-date [... * ...] (collectively, “XenoPort Operating Expenses”) for such quarter in the United States, as defined in Exhibit 6.5. Within [... * ...], GSK shall furnish to XenoPort a statement (the “Joint P&L”) setting forth the year-to-date Net Sales in the United States during such quarter, and GSK’s year to date [... * ...] (collectively, “GSK Operating Expenses”) for such quarter in the United States, as defined in Exhibit 6.5. Whenever GSK provides XenoPort with

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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a statement of GSK Operating Expenses, or XenoPort provides GSK with a statement of XenoPort Operating Expenses, the providing Party shall provide such supporting documentation as the receiving Party may reasonably request. Such Joint P&L will also include the amount of the Operating Profits or Loss for the quarter and year-to-date and the percentage of such Operating Profits or Loss to Net Sales (the “Operating Profits/Loss Percentage”). GSK will calculate each Party’s share of the Operating Profit or Loss as follows: [... * ...]. In the event that the calculation of XenoPort’s share of the Operating Profits or Loss is a positive number, GSK shall pay to XenoPort, [... * ...] receipt of an invoice therefor from XenoPort as provided in Section 7.1, the difference between the amount owed to XenoPort under the then-current Joint P&L and any amounts already paid to or received from XenoPort pursuant to this Section 6.5(c) with respect to prior Joint P&Ls for the same year. In the event that the calculation of XenoPort’s share of the Operating Profits or Loss is a negative number, XenoPort shall, [... * ...] its receipt of an invoice provided by GSK together with, or after providing, such a Joint P&L, pay to GSK the difference between the amount owed to GSK under the then current Joint P&L and any amounts already paid to or received from GSK pursuant to this Section 6.5(c) with respect to prior Joint P&Ls for the same year. For clarity, it is understood that XenoPort is [... * ...] with respect to [... * ...] in accordance with [... * ...]. Examples of the calculation of each Party’s share of the Operating Profits or Loss is provided in Exhibit 6.5. In the event that the foregoing procedure does not permit one or both of the Parties to comply with reporting requirements under applicable United States securities laws, rules and regulations, the JCC will modify the foregoing procedure to permit the Parties to comply with such reporting requirements, consistent with the general approach set forth in this Section 6.5(c).

     (d) Operating Losses Prior to First Commercial Sale. It is understood that the calculation of Marketing Costs shall commence as of the date XenoPort exercises its Co-Promotion Option in accordance with Section 5.2(a) above and shall include those Marketing Costs incurred after such date. [... * ...] provided that [... * ...] the date XenoPort exercises its Co-Promotion Option [... * ...].

     (e) Financial Reporting. To facilitate financial reporting, including earnings forecasts, each Party agrees to keep the other Party fully informed as to its forecasts of Net Sales, Operating Expenses and Operating Profit or Loss.

ARTICLE VII

PAYMENTS; BOOKS AND RECORDS

     7.1 Payment Method; Invoices. All milestone payments under this Agreement shall be made by bank wire transfer in immediately available funds to an account designated in an invoice from the Party to which such payments are due, which invoice should include bank details, the contact name for any issue resolution and be marked for the attention of the Alliance Manager of the Party to whom such payment is due. Any payments or portions thereof due under this Agreement that are not paid by the date such payments are due under this Agreement shall bear interest at a rate equal to: (i) the prime rate as reported by Citibank N.A., [... * ...]; or (ii) if lower,

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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the maximum rate permitted by law; calculated on the number of days such payment is delinquent, compounded annually and computed on the basis of a three hundred sixty five (365) day year. This Section 7.1 shall in no way limit any other remedies available to the Parties. All amounts owed by GSK to XenoPort hereunder shall be paid by an entity resident in the United Kingdom from a bank account located in the United Kingdom.

     7.2 Currency Conversion. With respect to sales of the Product invoiced in United States dollars, the Net Sales and the amounts due hereunder will be expressed in United States dollars. With respect to sales of the Product invoiced in a currency other than United States dollars, the Net Sales and amounts due hereunder will be reported in United States dollars, calculated using the average exchange rates as calculated and utilized by GSK’s group reporting system and published accounts. As of the Effective Date, [... * ...].

     7.3 Withholding Taxes; Taxes Generally.

     (a) If taxes are required under Applicable Law in the United Kingdom to be withheld by GSK on any payment on behalf of XenoPort, GSK will (a) deduct those taxes from the payment and (b) pay the taxes to the proper taxing authority. In the event such taxing authorities routinely provide a tax receipt upon payment, GSK will procure such receipt for any such withholding evidencing payment of such taxes, which will be forwarded to XenoPort. XenoPort represents andwarrants that it is resident for tax purposes in the United States and that it is entitled to relief from the United Kingdom income tax under the terms of the double tax agreement between the United Kingdom and the United States. [... * ...] GSK shall [... * ...] GSK shall [... * ...] the United Kingdom and the United States. [... * ...] withholding tax [... * ...]

     (b) Each Party shall be responsible for paying taxes imposed by any taxing authority on any income earned by such Party under this Agreement.

     7.4 Records; Inspection.

     (a) GSK. GSK shall keep, and require its Affiliates and Sublicensees to keep, complete, true and accurate books of accounts and records for the purpose of determining the amounts payable to XenoPort pursuant to this Agreement. Such books and records shall be kept for at least [... * ...] following the end of the calendar quarter to which they pertain and shall be open for inspection and audit by XenoPort during such [... * ...] period on the terms of this Section 7.4(a). Upon not less than [... * ...] prior written notice, GSK shall permit an independent, certified public accountant selected by XenoPort and reasonably acceptable to GSK, which acceptance will not be unreasonably withheld or delayed (for the purposes of this Section 7.4(a), the “Auditor”), to audit or inspect those books or records of GSK that relate to Net Sales and Payment Reports, and/or Joint P&L (including the components thereof) for the sole purpose of verifying the: (i) royalties and other payments payable hereunder in respect of Net Sales or Operating Profit or Loss for such annual period under review; (ii) withholding taxes, if any, required by Applicable Law to be deducted as a payment by GSK in respect of such Net Sales; and (iii) exchange rates used in

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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determining the amount of United States dollars. The Auditor will disclose to XenoPort only the amount and accuracy of payments reported and actually paid or otherwise payable under this Agreement. The Auditor will send a copy of the report to GSK at the same time it is sent to XenoPort. Such inspections may be made no more than once each calendar year and during normal business hours. Such records for any particular calendar quarter shall be subject to no more than one inspection. The Auditor shall be obligated to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 7.4(a) shall be at the expense of XenoPort, unless a variation or error producing an underpayment in amounts payable exceeding [... * ...] of the amount paid for a period covered by the inspection is established, in which case all reasonable costs relating to the inspection for such period and any unpaid amounts that are discovered shall be paid by GSK, together with interest on such unpaid amounts at the rate set forth in Section 7.1 above. The Parties will endeavor in such inspection to minimize disruption of GSK’s normal business activities to the extent reasonably practicable.

     (b) XenoPort. XenoPort shall keep complete, true and accurate books of accounts and records for the purpose of determining payments due from GSK pursuant to this Agreement. Such books and records shall be kept for at least [... * ...] following the end of the calendar quarter to which they pertain and shall be open for inspection and audit by GSK during such [... * ...] period on the terms of this Section 7.4(b). Upon not less than [... * ...] prior written notice, XenoPort shall permit an independent, certified public accountant selected by GSK and reasonably acceptable to XenoPort, which acceptance will not be unreasonably withheld or delayed (for the purposes of this Section 7.4(b), the “Auditor”), to audit or inspect those books or records of XenoPort that relate to XenoPort Operating Expenses and Sales Costs, for the sole purpose of verifying the amounts payable hereunder. The Auditor will disclose to GSK only the amount and accuracy of payments reported and actually paid or otherwise payable under this Agreement. The Auditor will send a copy of the report to XenoPort at the same time it is sent to GSK. Such inspections may be made no more than once each calendar year and during normal business hours. Such records for any particular calendar quarter shall be subject to no more than one inspection. Auditor shall be obligated to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 7.4(b) shall be at the expense of GSK, unless a variation or error producing an overpayment in amounts payable exceeding [... * ...] of the amount paid for a period covered by the inspection is established, in which case all reasonable costs relating to the inspection for such period and any overpaid amounts that are discovered shall be paid by XenoPort, together with interest on such overpaid amounts at the rate set forth in Section 7.1 above. The Parties will endeavor in such inspection to minimize disruption of XenoPort’s normal business activities to the extent reasonably practicable.

ARTICLE VIII

CERTAIN COVENANTS

     8.1 Diligent Efforts of GSK. GSK shall use Commercially Reasonable Efforts to [... * ...] Without limiting the foregoing, GSK agrees to [... * ...].

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     8.2 Diligent Efforts of XenoPort. XenoPort shall use Commercially Reasonable Efforts to conduct the Clinical Studies and Activities and, in the event that it exercises the Co-Promotion Option, use Commercially Reasonable Efforts in its Co-Promotion and Detailing of the Product and/or Detailing the REQUIP™ Products, as applicable.

     8.3 General Communications. Each Party shall keep the other Party fully and promptly informed as to its progress and activities relating to the development, commercialization, marketing and promotion of the Product in the Territory, including with respect to regulatory matters and meetings with Regulatory Authorities, by way of updates to appropriate Committees at their meetings and as otherwise specified in this Agreement, or as reasonably requested by the other Party. In connection therewith, XenoPort and GSK shall provide each other with such information regarding such progress and activities under the Development Plan, the Commercialization Plan and/or any Co-Promotion Plan, or otherwise relating to the Product, as the other Party may request from time to time. In order to facilitate the Parties’ exercise of their rights and fulfillment of their obligations hereunder, each Party agrees to give due consideration to any comments provided by the other Party with respect to such development, commercialization, marketing and promotion of the Compound and/or any Product in the Territory.

     8.4 Reversion of Rights to the Product in the Asian Territory; Right of First Negotiation.

     (a) Election to Negotiate.

          (i) Notice. If, during the Term, all of the rights to the Compound and Products in a country in the Asian Territory revert to XenoPort upon a termination of the Astellas Agreement and XenoPort proposes to enter into a collaboration with a Third Party with respect to the commercialization of the Compound and Products in such country, XenoPort shall notify GSK in writing (a “Reversion Notice”).

          (ii) Election to Negotiate. If GSK notifies XenoPort in writing, within [... * ...] after receiving a Reversion Notice from XenoPort pursuant to Section 8.4(a)(i), that GSK is interested in entering into a collaboration with respect to the Compound and Products in a country in the Asian Territory (the “Election Notice”), XenoPort shall provide GSK with a term sheet outlining the potential terms of such a transaction for such country, and the Parties shall negotiate towards mutually acceptable terms and conditions for such a transaction. If the Parties agree on such terms, the Parties shall prepare and execute a definitive agreement setting forth the agreed terms (each such agreement, an “Asian Territory Agreement”). If the Parties have not entered into an Asian Territory Agreement within [... * ...] after the date of the Election Notice (“Negotiation Period”), then XenoPort shall be free to grant to one or more Third Party(ies) rights to the Compound and/or any Product in such country; provided that the terms of such grant are More Favorable (as defined below) to XenoPort. If GSK does not provide an Election Notice to XenoPort within [... * ...] after receiving a Reversion Notice, or if, after delivering the Election Notice and during the Negotiation Period, GSK neither agrees to enter into a transaction on the terms last proposed by XenoPort nor

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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offers to XenoPort in writing alternative terms under which GSK would agree to enter into a transaction with respect to the Compound and Product, then, notwithstanding the foregoing, XenoPort shall be free to grant to one or more Third Parties rights to the Compound and/or any Product in such country in the Asian Territory, without further obligation to GSK under this Section 8.4.

          (iii) Re-offer to GSK.

               (A) If XenoPort desires to grant to a Third Party rights to the Compound and Products in a country in the Asian Territory on terms and conditions that would not be More Favorable to XenoPort, then to the extent XenoPort has a continuing obligation to GSK under Section 8.4(a)(ii) above, XenoPort shall notify GSK in writing (a “Re-Offer Notice”) and provide a revised term sheet of proposed terms (“Revised Terms”). In such event, the Parties shall repeat the procedures of Section 8.4(a)(ii) above, except that the Negotiation Period shall be [... * ...].

               (B) If GSK provides an Election Notice pursuant to Section 8.4(a)(iii)(A) above and desires to accept the Revised Terms, it shall so agree in writing within [... * ...], in which case the Parties shall enter into an Asian Territory Agreement reflecting such Revised Terms and such other terms and conditions as are reasonable. If the Parties are unable to agree on any remaining terms and conditions of such Asian Territory Agreement, then, upon request by either Party, such remaining terms shall be determined pursuant to Section 18.2 below.

     (b) Independent Development and Commercialization of the Compound and Products if No Asian Territory Agreement. It is understood that neither XenoPort nor GSK shall have any obligation to collaborate or enter into any arrangement or agreement with respect to the development and/or commercialization of the Compound and/or Products in a country in the Asian Territory. If, however, GSK does not elect to negotiate an Asian Territory Agreement for a country in the Asian Territory as described above following GSK’s receipt of a Reversion Notice, or if XenoPort has made a bona fide, good faith offer to GSK with respect to a collaboration with respect to the Compound and Products in a country in the Asian Territory in accordance with Section 8.4(a)(ii) above and the Parties have not entered into an Asian Territory Agreement granting GSK commercialization rights for the Compound and Products in such country in the Asian Territory, then XenoPort shall be free to commercialize the Compound and Products itself or through Affiliates and/or Third Parties in such country, without further obligation to GSK under this Section 8.4 (except that any grant of commercialization rights to a Third Party licensee for the Compound and Products in such country would be subject to Section 8.4(a)(ii), if such obligation is still applicable by its terms). In addition, once XenoPort has provided one notice to GSK that XenoPort proposes to enter into a collaboration with a Third Party with respect to the commercialization of the Compound and Product in a country in the Territory, XenoPort’s obligation under this Section 8.4 shall be deemed fully satisfied with respect to such country only.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (c) More Favorable Terms. For purposes of this Section 8.4, terms of a Third Party agreement for a country in the Asian Territory shall be deemed “More Favorable” if, on the whole, such terms for such country are more favorable from XenoPort’s perspective than the terms last offered by GSK for such country in the Negotiation Period. In the event of a dispute as to whether the terms or proposed terms of a Third Party agreement for a country are More Favorable, such dispute shall be resolved by binding arbitration in accordance with Section 18.2 below.

     (d) Additional Procedures; Matters.

          (i) Term Sheet Level. The negotiations to be pursued between the Parties under Section 8.4 with respect to a country in the Asian Territory may be conducted at the term sheet level, and therefore may not include all of the terms and conditions of the definitive agreement. The terms proposed for a country in the Territory need not be exactly those proposed to one or more Third Parties for such country; provided that, [... * ...].

          (ii) No Implied Obligations. The only obligations of GSK and XenoPort under this Section 8.4 are as expressly stated herein, and there are no further implied obligations relating to the matters contemplated therein. Without limiting the foregoing, XenoPort is not at any time obligated to disclose the identity of any Third Party with whom it is discussing a Third Party agreement and GSK’s rights under this Section 8.4 shall be triggered only once for a country in the Asian Territory, upon the first reversion to XenoPort of all rights to the Compound and Products in such country. It is further acknowledged and agreed that: (A) this Section 8.4 shall not be deemed to apply to a transaction by which a Third Party acquires substantially all of the business or assets of XenoPort; and (B) if XenoPort enters into a transaction with a Third Party in accordance with this Section 8.4 that includes the grant by XenoPort of an option or other contingent right to acquire the right to market and/or distribute one or more products (each such option or right being referred to as a “Contingent Right”), then the grant of rights by XenoPort upon a Third Party’s exercise of such Contingent Right shall not be subject to this Section 8.4 so long as the grant of such Contingent Right was made in a transaction entered into with the Third Party in compliance with this Section 8.4.

     (e) No Licenses Granted. It is understood that no license or other right to develop or commercialize the Compound and/or Products in the Asian Territory are granted under this Agreement to GSK. Any such rights would be granted only under a separate written Asian Territory Agreement entered into by the Parties in accordance with this Section 8.4 or otherwise agreed upon and executed by the Parties.

     (f) Disputes. Any disputes under this Section 8.4 shall be resolved in accordance with Section 18.2 below. If GSK disputes XenoPort’s right to grant a right or license by reason of this Section 8.4, GSK shall promptly so notify XenoPort. In the event of a dispute under this Section 8.4, GSK shall initiate an arbitration proceeding under Section 18.2 within [... * ...] after XenoPort notifies GSK in writing that XenoPort disputes GSK’s position or interprets this Section 8.4 as applying in a particular way. If GSK does not initiate such arbitration within such [... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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period, GSK shall have no further right to dispute XenoPort’s right to grant any right or license under this Section 8.4 on any grounds that were the basis of such dispute, or otherwise dispute XenoPort’s interpretation of this Section 8.4 as reflected in XenoPort’s notice.

8.5 Managed Care Contracting. [... * ...]

ARTICLE IX

CHANGE OF CONTROL

     9.1 Change of Control of XenoPort. XenoPort shall notify GSK in writing within [... * ....]. During the [... * ...] following its receipt of such notice from XenoPort, GSK shall have the right, upon [... * ...] written notice to XenoPort:

     (a) To terminate XenoPort’s right to Co-Promote and Detail the Product as provided in Article 5 above if such Change of Control involves a Major Pharmaceutical Company; provided that [... * ...]; and

     (b) To terminate XenoPort’s right to Detail the REQUIP™ Products as provided in Article 5 above, whether or not such Change of Control involves a Major Pharmaceutical Company.

     (c) If GSK exercises such right of termination as provided in Section 9.1(a) above: (i) the provisions of Article 3 shall terminate, in which case references in this Agreement to approvals or actions of the ESC, JDC or JCC shall thereafter be deemed to be satisfied by approvals or actions of GSK; (ii) Section 4.3 shall terminate; and (iii) XenoPort’s rights and GSK’s obligations under Section 4.7(a) shall terminate.

     (d) If as a result of a Change of Control of a Party (the “Acquired Party”), such Acquired Party becomes obligated to divest rights to the Compound and Products in one (1) or more countries in the Territory, such Party shall notify the other Party (the “Continuing Party”) in writing. Within [... * ...], the Continuing Party shall notify the Acquired Party in writing whether it is interested in acquiring all of the Acquired Party’s rights to the Compound and Products in such country or countries in the Territory. If the Continuing Party so notifies the Acquired Party, the Parties shall discuss mutually acceptable terms upon which the Continuing Party may acquire all of the Acquired Party’s rights to the Compound and Products in such country or countries in the Territory. In such case, if the Parties do not agree on such terms then prior to divesting such rights, the Acquired Party shall notify the Continuing Party in writing, together with the full set of terms and conditions under which the Acquired Party proposes to divest such rights, and the Continuing Party shall have the right, exercisable within [... * ...], to acquire such rights on such terms and conditions.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (e) For the avoidance of doubt, except as set out in this Section 9.1, a Change of Control of XenoPort shall not otherwise affect the rights or obligations of the Parties with respect to the Compound and Products in the Territory under this Agreement, and shall not be deemed to modify or expand the scope of GSK’s rights under Section 2.1 or 2.2 above.

ARTICLE X

MANUFACTURING AND SUPPLY

     10.1 Transfer of Manufacturing and Supply Responsibilities. Within [... * ...] the HSR Clearance Date, XenoPort and GSK shall develop and reasonably agree upon a detailed plan (“Supply Transition Plan”) to transfer to GSK responsibility for manufacturing and supply of the Compound and Products for use in the Territory by GSK by [... * ...] (“Supply Transition Date”). The Supply Transition Plan shall include technical transfer requirements, which shall include transfer to GSK of the items contained in Exhibit 10.1. XenoPort shall use Commercially Reasonable Efforts to allocate appropriate resources to effect the transfer of such responsibility in an orderly and timely manner in accordance with the Supply Transition Plan and the timelines set forth therein. Without limiting the foregoing, the Supply Transition Plan shall include the provision to GSK of all XenoPort Know-How necessary for the manufacture of the Compound and Products in accordance with the licenses granted to GSK under this Agreement.

     10.2 Activities After the HSR Clearance Date. Promptly after the HSR Clearance Date:

     (a) XenoPort shall, at GSK’s request, transfer responsibility for the process and formulation development of the Compound and for sourcing GSK’s requirements of clinical and commercial supplies of the Compound and/or Products for the purposes of this Agreement to GSK. However, if requested by GSK, XenoPort shall continue its current work for process and formulation development of the Compound until such time as GSK determines that a development milestone has been reached which will allow for the most efficient transfer of process and formulation development of the Compound. Notwithstanding such eventual transfer, XenoPort shall use Commercially Reasonable Efforts to provide all necessary consultation and assistance to GSK for such process and formulation development.

     (b) Upon request and in accordance with the Supply Transition Plan, GSK may at its option, request that XenoPort transition all works in progress, drug substance, quantities of usable materials and finished Products to GSK, which GSK will pay for at XenoPort’s cost, except [... * ...].

     (c) GSK (or its designee) shall have responsibility for the direct management of the arrangements with any Third Party suppliers of the Compound and/or Products. Upon request, XenoPort shall provide GSK with any contact information for any Third Party suppliers it currently uses.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     10.3 Activities After the Supply Transition Date. On and from the Supply Transition Date, as between the Parties and subject to the terms and conditions of this Agreement, GSK shall have the exclusive right to manufacture the Compound and the Products for distribution in the Territory; except that [... * ...] the Compound and Products [... * ...] the Territory [... * ...] It is understood that [... * ...] with respect to the manufacture of the Compound and Products for distribution [... * ...].

ARTICLE XI

CONFIDENTIALITY

     11.1 Confidential Information. Except as expressly provided in this Agreement, the Parties agree that the receiving Party shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other Party hereto pursuant to this Agreement (collectively, “Confidential Information”). Notwithstanding the foregoing, Confidential Information shall not include information that, in each case as demonstrated by written documentation:

     (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure or, as shown by written documentation, was developed by the receiving Party prior to its disclosure by the disclosing Party;

     (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

     (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;

     (d) was subsequently lawfully disclosed to the receiving Party by a person other than the disclosing Party, and who did not directly or indirectly receive such information from disclosing Party; or

     (e) is developed by the receiving Party without use of or reference to any Confidential Information disclosed by the disclosing Party.

     11.2 Permitted Disclosures. Notwithstanding the provisions of Section 11.1 above and subject to Sections 11.3 and 11.4 below, each Party hereto may use and disclose the other Party’s Confidential Information to its Affiliates, licensees, permitted Sublicensees, contractors and any other Third Parties to the extent such use and/or disclosure is reasonably necessary to exercise the rights granted to it, or reserved by it, under this Agreement, prosecuting or defending litigation, complying with Applicable Laws, submitting information to tax or other governmental authorities or

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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conducting clinical trials hereunder with respect to any Product. If a Party is required by Applicable Law to make any such disclosure of the other Party’s Confidential Information, to the extent it may legally do so, it will give reasonable advance notice to the latter Party of such disclosure and, save to the extent inappropriate in the case of patent applications or otherwise, will use its good faith efforts to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders or otherwise). For any other disclosures of the other Party’s Confidential Information, including to Affiliates, licensees, permitted Sublicensees, contractors and other Third Parties, a Party shall ensure that the recipient thereof is bound by a written confidentiality agreement as materially protective of such Confidential Information as this Article 11.

     11.3 Confidential Terms. Each Party agrees not to disclose to any Third Party [... * ...] except each Party may disclose [... * ...] (a) [... * ...] or (b) [... * ...] to the extent allowable by Applicable Law, [... * ...] that is required [... * ...] Notwithstanding the foregoing, [... * ...] of which [... * ...] thereafter, [... * ...].

     11.4 Publication of Product Information. Prior to its publishing, publicly presenting and/or submitting for written or oral publication a manuscript, abstract or the like in the Territory with respect to GSK and with respect to XenoPort (to the extent XenoPort has the right to do so) in the Asian Territory, that includes Data or other information relating to the Compound or any Product that has not previously published, a Party shall provide the other Party a copy thereof for its clinical review for at least [... * ...] (unless such Party is required by Applicable Law to publish such information sooner). Such Party shall consider in good faith any comments provided by the other Party during such [... * ...] period. In addition, the publishing Party shall, at the request of the other Party, remove any Confidential Information of the other Party therefrom, except each Party shall have the right to publicly disclose any information, including Confidential Information, pertaining to safety of a Product that such Party believes in good faith it is obligated or appropriate to disclose. Without limiting the foregoing, it is understood that the principles to be observed in any disclosures described in this Section 11.4 shall be accuracy, compliance with Applicable Law, reasonable sensitivity to potential negative reactions of the FDA (and its foreign counterparts) and the need to keep investors informed regarding the publishing Party’s business. Accordingly, any comments provided by the other Party on a disclosure submitted to it by the publishing Party pursuant to this Section and/or any requests for any Confidential Information to be removed from any such disclosure shall comply with such principles. The contribution of each Party shall be noted in all publications or presentations by acknowledgment or co-authorship, whichever is appropriate. For the avoidance of doubt, XenoPort will not be permitted to publish, publicly present and/or submitting for written or oral publication a manuscript, abstract or the like in the Territory relating to the Product without the prior written consent of GSK, which consent will not be unreasonably withheld. Nothing in this Section 11.4 shall, however, be deemed to limit Astellas’ rights to publish, publicly present and/or submit for publication a manuscript, abstract or the like that includes data or other information relating to the Compound or any Product under development or being commercialized by or under the authority of Astellas in the Asian Territory.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     11.5 Publicity Review. The Parties acknowledge the importance of supporting each other’s efforts to publicly disclose results and significant developments regarding the Product and other activities in connection with this Agreement that may reflect the terms of this Agreement or information that is not otherwise permitted to be disclosed under this Article 11, beyond what is required by Applicable Law, and each Party may make such disclosures from time to time with the approval of the other Party, which approval shall not be unreasonably withheld or delayed. Such disclosures may include, without limitation, achievement of milestones, significant events in the development and regulatory process, commercialization activities and the like. When a Party (the “Requesting Party”) elects to make any such public disclosure under this Section 11.5, it will give the other Party (the “Cooperating Party”) at least [... * ...] notice to review and comment on such statement, it being understood that if the Cooperating Party does not notify the Requesting Party in writing within such [... * ...] period of any reasonable objections, as contemplated in this Section 11.5, such disclosure shall be deemed approved, and in any event the Cooperating Party shall work diligently and reasonably to agree on the text of any proposed disclosure in an expeditious manner. The principles to be observed in such disclosures shall be accuracy, compliance with Applicable Law, reasonable sensitivity to potential negative reactions of the FDA (and its foreign counterparts) and the need to keep investors informed regarding the Requesting Party’s business. Accordingly, the Cooperating Party shall not withhold its approval of a proposed disclosure that complies with such principles.

     11.6 Prior Non-Disclosure Agreements. Upon execution of this Agreement, the terms of this Article 11 shall supersede any prior non-disclosure, secrecy or confidentiality agreement between the Parties. Any information disclosed under such prior agreements shall be deemed disclosed under this Agreement.

ARTICLE XII

PATENT PROSECUTION AND ENFORCEMENT

     12.1 Ownership of Inventions. Title to all inventions and other intellectual property (other than XenoPort Trademarks) made solely by GSK personnel in connection with this Agreement shall be owned by GSK. Title to all inventions and other intellectual property (other than GSK Trademarks) made solely by XenoPort personnel in connection with this Agreement shall be owned by XenoPort. Title to all inventions and other intellectual property (other than Trademarks) made jointly by personnel of XenoPort and GSK in connection with this Agreement shall be jointly owned by XenoPort and GSK. Prosecution of any Patent with respect to such jointly-owned inventions and intellectual property shall be solely as mutually agreed. Except as expressly provided in this Agreement, it is understood that neither Party shall have any obligation to obtain any approval of, nor pay a share of the proceeds to, the other Party to practice, enforce, license, assign or otherwise exploit such jointly-owned inventions or intellectual property, and each Party hereby waives any right it may have under the Applicable Laws of any jurisdiction to require such approval or accounting. GSK hereby grants to XenoPort [... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     12.2 Prosecution and Maintenance of XenoPort Patents.

     (a) GSK Control of Prosecution. [... * ...] GSK shall have the right, at its expense, to control the Prosecution and Maintenance of Patents included in the XenoPort Patents as of the Effective Date, or which may be filed in any country of the Territory after the Effective Date, to the extent the same are directed to the Compound or any Product, and/or manufacturing and/or use thereof, in the Field in the Territory (such XenoPort Patents [... * ...], are referred to below as the “GSK Prosecuted XP Patents”)]. GSK shall diligently Prosecute and Maintain the GSK Prosecuted XP Patents; shall consult with XenoPort in good faith regarding the Prosecution and Maintenance of such GSK Prosecuted XP Patents; and shall take into account XenoPort’s reasonable comments related to such matters. If GSK determines not to file any Patent, or to abandon any Patent within the GSK Prosecuted XP Patents, with respect to any subject matter described in this Section 12.2(a), as applicable, GSK shall provide XenoPort with at least [... * ...] written notice of such decision, prior to the deadline for filing any such Patent or the date on which such abandonment would become effective. In such event, XenoPort shall have the right, at its option, to control the Prosecution and Maintenance of such Patent. For the purposes of this Section 12.2, “Prosecution and Maintenance” (including variations such as “Prosecute and Maintain”) shall mean, with respect to a Patent, the preparing, filing, prosecuting and maintenance of such Patent, as well as re-examinations, reissues and requests for Patent term extensions and the like with respect to such Patent, together with the conduct of interferences, the defense of oppositions and other similar proceedings with respect to a Patent. Also, as used in this Section 12.2, to “abandon” a Patent shall include deciding not to defend against an opposition, not to defend an interference or similar proceeding or not to pursue an appeal of an adverse decision, in each case with respect to such Patent in the United States Patent & Trademark Office or a corresponding patent examining authority in another country of the Territory.

     (b) XenoPort Prosecuted Patents. XenoPort shall have the right, at its expense, to control the Prosecution and Maintenance of the XenoPort Patents [... * ...] and shall diligently Prosecute and Maintain the XenoPort Prosecuted Patents in the Territory. [... * ...] If XenoPort determines not to file, or to abandon, any such Patent within such XenoPort Patents, [... * ...] XenoPort shall [... * ...] to the extent of [... * ...] In addition, [... * ...] XenoPort shall [... * ...]

     (c) XenoPort Patents in the Asian Territory. If, and only to the extent, permitted under its Agreement with Astellas, XenoPort shall consult with GSK in good faith regarding the Prosecution and Maintenance of XenoPort Patents in the Asian Territory and shall take into account GSK’s reasonable comments related to such matters.

     (d) Cooperation. Each Party shall cooperate with the other Party in connection with all activities relating to the Prosecution and Maintenance of the XenoPort Patents undertaken by such other Party pursuant to this Section 12.2, including: (i) making available in a timely manner any documents or information such other Party reasonably requests to facilitate such other Party’s Prosecution and Maintenance of the XenoPort Patents pursuant to this Section 12.2; and (ii) if and as appropriate, signing (or causing to have signed) all documents relating to the Prosecution and

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Maintenance of any XenoPort Patents by such other Party. Each Party shall also promptly provide to the other Party all information reasonably requested by such other Party with regard to such Party’s activities pursuant to this Section 12.2, and if requested, permit such other Party to participate at its own expense in any opposition, interference, appeal or similar proceeding with respect to a XenoPort Patent, to the extent the same are directed to the Compound or any Product, and/or manufacturing and/or use thereof, in the Field in the Territory. GSK shall hold all information disclosed to it under this Section as Confidential Information.

     12.3 Enforcement.

     (a) Notice. In the event that XenoPort or GSK becomes aware of actual or threatened infringement or misappropriation of any XenoPort Patent or XenoPort Know-How by the manufacture, sale or use in the Territory of a product containing a Competitive Compound for the treatment of an Indication that competes directly with a Product in any country within the Territory, including the filing of an Abbreviated New Drug Application with the FDA (an “Infringement”), that Party shall promptly notify the other Party in writing. “Competitive Compound” shall mean [... * ....].

     (b) Initiating Enforcement Actions. GSK has the right to initiate infringement proceedings or take other appropriate actions against an Infringement in the Territory. If Applicable Law in a country in the Territory does not permit an exclusive licensee to initiate such actions (i.e., such action may only be initiated by the owner of the patent being infringed), GSK would have the right to insist that XenoPort initiates such action on GSK’s behalf and at GSK’s expense. If GSK does not initiate proceedings or take other appropriate action within [... * ...] of receipt of a request by XenoPort to do so, then XenoPort shall be entitled to initiate infringement proceedings or take other appropriate action against an Infringement at its own expense. The Party conducting such action shall have full control over the conduct of such action, including settlement thereof; provided, however, that the Party conducting such action may not settle any such action, or make any admissions or assert any position in such action, in a manner that would materially adversely affect the rights or interests of the other Party (including by making any admission or assertion of any position, that would materially adversely affect the validity, enforceability or scope of any XenoPort Patent in or in the Asian Territory), without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. The Party conducting such action (except in the case of XenoPort, where XenoPort conducts such action at the request of GSK) will [... * ...]. In any event, the Parties shall assist one another and cooperate in any such action at the other’s reasonable request.

     (c) Recovery. GSK and XenoPort shall [... * ...] associated with any litigation against infringers undertaken pursuant to Section 12.3 above or settlement thereof [... * ...] to the extent [... * ...].

     (d) Cooperation. The Parties shall keep one another informed of the status of their respective activities regarding any litigation or settlement thereof concerning an Infringement

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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and shall assist one another and cooperate in any such litigation at the other’s reasonable request (including joining as a party plaintiff to the extent necessary and requested by the other Party).

     12.4 Third Party Infringement Claims. If the production, sale or use of the Compound or any Product in the Territory pursuant to this Agreement results in a claim, suit or proceeding alleging patent infringement against XenoPort or GSK (or their respective Affiliates, licensees or Sublicensees) (collectively, “Infringement Actions”), such Party shall promptly notify the other Party hereto in writing. The Party subject to such Infringement Action shall have the first right, but not the obligation, to direct and control the defense thereof; provided, however, that the other Party may participate in the defense and/or settlement thereof at its own expense with counsel of its choice. In any event, the Party that is subject to the Infringement Action agrees to keep the other Party hereto reasonably informed of all material developments in connection with any such Infringement Action. The Party who is subject to the Infringement Action agrees not to settle such Infringement Action, or make any admissions or assert any position in such Infringement Action, in a manner that would adversely affect the Compound or the manufacture, use or sale of the Compound or any Product within or outside the Territory, without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. GSK may [... * ...]. As used herein, “Damages” shall mean out-of-pocket costs incurred by GSK, including reasonable attorney’s fees, damages and other liabilities that are part of any final judgment awarded against GSK, and any amounts paid by GSK in a settlement of the action that is approved by XenoPort, such approval not to be unreasonably withheld or delayed. The Parties shall assist one another and cooperate in any such action at the other’s reasonable request.

     12.5 Patent Marking. GSK agrees to mark, and have its Affiliates and Sublicensees mark, all patented Products they sell or distribute pursuant to this Agreement in accordance with the applicable patent statutes or regulations in the country or countries of sale thereof.

     12.6 Regulatory Data Protection

     (a) To the extent required or permitted by Applicable Law, the Parties will use Commercially Reasonable Efforts to promptly, accurately and completely list, with the applicable Regulatory Authorities during the Term all applicable XenoPort Patents, and/or any Patents that are Controlled by GSK or its Controlled Affiliates, for any Product and that the Parties intend, or have begun, to commercialize in the Territory and that have become the subject of an NDA submitted to FDA, such listings to include all so called “Orange Book” listings required under the Hatch-Waxman Act (regardless of which Party is the sponsor of record of the NDA at such time) and all so called “Patent Register” listings as required in Canada.

     (b) In connection with such listings, the Parties will meet to evaluate and identify all applicable Patents that are Controlled by each Party. GSK will retain final decision making authority as to the listing of all applicable Patents for any Product regardless of which Party Controls such Patent.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (c) Patent Rights Certifications and Infringement Suits. Each Party will immediately give notice to the other Party of any certification received under the Hatch-Waxman Act or any foreign equivalents with respect to a Product. Notwithstanding any provision herein to the contrary, the following provisions of this Section 12.6(c) will apply for certifications claiming that any of the XenoPort Patents are invalid, unenforceable or that no infringement will arise from the manufacture, use or sale of a Third Party’s product containing a Competitive Compound (i.e., a Paragraph IV Certification under 21 U.S.C. Section 355 and 21 C.F.R. Part 314). GSK has the first right, but not the obligation to bring suit against the Third Party that filed the certification. If GSK decides to bring suit, GSK has sole control of all decisions regarding all aspects of such litigation; provided that XenoPort will have the right to participate in such litigation and to share in recoveries from such litigation in the same manner as set forth in Section 12.3(c) with respect to infringement litigation brought by GSK thereunder. XenoPort will execute such legal papers necessary for the prosecution of such suit and cooperate with GSK as may be reasonably requested by GSK. If GSK decides not to bring infringement proceedings against the entity making such a certification with respect to any such XenoPort Patents, GSK will give notice to XenoPort of its decision not to bring suit within [... * ...] after receipt of notice of such certification and XenoPort shall have the right, but not the obligation, to bring suit against the Third Party that filed the certification, in the same manner that XenoPort has the right to bring actions under Section 12.3(b) if GSK does not exercise its first right to bring suit thereunder. If XenoPort decides to bring suit, XenoPort will have sole control of such litigation and will, at GSK’s request, execute an agreement confirming that the decision to sue was made despite GSK’s objection and indemnifying GSK for all claims and losses suffered by GSK as a result of such suit. If XenoPort decides to sue, XenoPort is responsible for all litigation costs and shall have no right to obtain reimbursement for its litigation costs from GSK; provided, however, that [... * ....].

ARTICLE XIII

TRADEMARKS

     13.1 Non-Exclusive License. GSK shall have a non-exclusive, royalty-free license, with the right to grant sublicenses, to use the XenoPort Trademarks solely for market research and other similar activities to determine whether GSK will use the XenoPort Trademarks or GSK Trademarks in connection with the commercialization and promotion of the Product in the Field in the Territory.

     13.2 Option for XenoPort Trademarks. For [... * ...] the HSR Clearance Date, GSK shall have an exclusive option to obtain an exclusive, royalty-free license, with the right to grant sublicenses, to use the XenoPort Trademarks in each country in the Territory in connection with the developing, making, having made, use, sale, offering for sale, importation, distributing and promoting of the Product in the Field in the Territory (the “XenoPort Trademarks Option”). In the event that GSK notifies XenoPort in writing that GSK is exercising the XenoPort Trademarks

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Option within [... * ...], XenoPort hereby grants to GSK an exclusive, royalty-free license, with the right to grant sublicenses as provided in Section 2.2, to use the XenoPort Trademarks in each country in the Territory in connection with the developing, making, having made, use, sale, offering for sale, importation, distributing and promoting of the Product in the Field in the Territory. Such license under the XenoPort Trademarks would include a right to use the XenoPort Trademarks as part of a domain name. In the event that (a) GSK determines not to exercise the XenoPort Trademarks Option, (b) GSK determines to use the GSK Trademarks in connection with Products in the Field in the Territory, or (c) GSK fails to notify XenoPort that it wishes to exercise the XenoPort Trademarks Option within [... * ...] the HSR Clearance Date, GSK’s rights under the XenoPort Trademarks Option shall terminate and XenoPort shall have no further obligations to GSK under such XenoPort Trademarks Option.

     13.3 XenoPort House Marks. All packaging, and package inserts for the Product shall, along with the GSK brand name and logo, include the XenoPort brand name and logo (such XenoPort brand name and logo, collectively “XenoPort House Marks”) (in such form as is reasonably requested by XenoPort) in reasonable size and prominence; it being understood that the exact size, placement and prominence of such XenoPort House Marks shall be determined by GSK in its reasonable discretion, and shall be subject to the approval of the ESC. XenoPort hereby grants to GSK a non-exclusive, royalty-free license, with the right to grant sublicenses as provided in Section 2.2, to use the XenoPort House Marks in connection with the developing making, having made, use, sale, offering for sale, importation, distributing and promotion of the Product in the Field in the Territory.

     13.4 Use of XenoPort Trademarks. With respect to GSK’s use of the XenoPort House Marks as provided in Section 13.3 above and GSK’s use the XenoPort Trademarks, if GSK exercises the XenoPort Trademarks Option as provided in Section 13.2 above, the following shall apply, to the extent relevant:

     (a) Restriction on Use. XenoPort agrees that it will not, and will cause its Affiliates and Astellas not to, use the XenoPort Trademarks or any substantially identical or similar marks in any country of the Territory for any reason without obtaining the prior written consent of GSK, which consent will not be unreasonable withheld.

     (b) Display. All final packaging, labels and Promotional Materials for the Product shall display the XenoPort Trademarks. Further, GSK will clearly indicate on all such final packaging, labels and promotional materials for the Product that the XenoPort Trademarks are owned by XenoPort. The trade dress and style of packaging used for each Product in the Field in the Territory shall be determined by GSK in a manner that is consistent with GSK’s then current standards for trade dress and style, and as part of GSK’s updates to the ESC, GSK shall keep XenoPort informed of GSK’s plans with respect to trade dress and style of packaging for the Product. For the avoidance of doubt, GSK may include the GSK logo and trade name on all final packaging, labels and promotional materials for the Product in any country in the Territory.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (c) Registration of Trade Marks. GSK agrees to file, register and maintain, during the Term and at GSK’s expense, appropriate trademark registrations for the XenoPort Trademarks in each country of the Territory in which Products are or will be sold. Such registrations for the XenoPort Trademarks shall be obtained by GSK in XenoPort’s name, to the extent permitted by Applicable Law in each country within the Territory. GSK shall promptly take all steps that may be reasonably necessary to transfer any such registration(s) for the Product Trade Marks in GSK’s name to XenoPort.

     (d) Ownership. As between the Parties, XenoPort shall own, and is hereby assigned, all right, title and interest in and to the XenoPort Trademarks and the XenoPort House Marks. The ownership and all goodwill from the use of the XenoPort Trademarks and the XenoPort House Marks shall vest in and inure to the benefit of XenoPort.

     (e) Recordation of Licenses. In those countries where a trademark license must be recorded, XenoPort will provide to GSK, on GSK’s written request, a separate trademark license for the XenoPort Trademarks and, if necessary, XenoPort House Marks on terms that are consistent with, and no broader or more onerous than, the terms of this Agreement and GSK will arrange for the recordation of such trade mark license with the appropriate Regulatory Authority, at GSK’s expense, promptly following receipt of such license from XenoPort. GSK shall cooperate in the preparation and execution of such documents.

     13.5 Approval of Packaging and Promotional Materials. Solely to the extent necessary to preserve XenoPort’s legal rights in the XenoPort House Marks and, if applicable, the XenoPort Trademarks, GSK shall submit to XenoPort, not less than [... * ...] to XenoPort for XenoPort’s review and approval solely with respect to GSK’s use of the XenoPort House Marks and XenoPort Trademarks, as applicable, which approval will not be unreasonably withheld or delayed. If XenoPort has not responded within [... * ...] XenoPort’s approval to GSK’s use of the XenoPort House Marks and XenoPort Trademarks, as applicable, on such promotional materials and packaging and will be deemed to have been received. GSK may make any subsequent changes to promotional materials and packaging bearing the XenoPort House Marks, or an approved XenoPort Trademark, other than changes to the XenoPort House Marks or XenoPort Trademark, as applicable, without the subsequent approval from XenoPort.

     13.6 Enforcement of XenoPort Trademarks.

     (a) Notice. If, after GSK has exercised the XenoPort Trademark Option, XenoPort or GSK becomes aware of actual or threatened infringement or misappropriation of any XenoPort Trademark in the Territory, that Party shall promptly notify the other Party in writing.

     (b) Initiating Enforcement Actions. GSK has the right to initiate infringement proceedings or take other appropriate actions against an infringement of the XenoPort Trademark in the Territory. If Applicable Law in a country in the Territory does not permit an exclusive licensee to initiate such actions (i.e., such action may only be initiated by the owner of the trademark being

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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infringed), GSK would have the right to insist that XenoPort initiates such action on GSK’s behalf and at GSK’s expense. If GSK does not initiate proceedings or take other appropriate action within [... * ...] then XenoPort shall be entitled to initiate infringement proceedings or take other appropriate action against an infringement of the XenoPort Trademark at its own expense. The Party conducting such action shall have full control over the conduct of such action, including settlement thereof; provided, however, that the Party conducting such action may not settle any such action, or make any admissions or assert any position in such action, in a manner that would materially adversely affect the rights or interests of the other Party, without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. The Party conducting such action (except in the case of XenoPort, where XenoPort conducts such action at the request of GSK) will [... * ...]. In any event, the Parties shall assist one another and cooperate in any such action at the other’s reasonable request.

     (c) Recovery. GSK and XenoPort shall [... * ...] associated with any litigation against infringers undertaken pursuant to this Section 13.6 or settlement thereof [... * ...] to the extent [... * ...].

     (d) Cooperation. The Parties shall keep one another informed of the status of their respective activities regarding any litigation or settlement thereof concerning an infringement of the XenoPort Trademark and shall assist one another and cooperate in any such litigation at the other’s reasonable request (including joining as a party plaintiff to the extent necessary and requested by the other Party).

     13.7 Enforcement of GSK Trademarks.

     (a) Notice. If XenoPort becomes aware of actual or threatened infringement or misappropriation of any GSK Trademark in the Territory, XenoPort shall promptly notify GSK in writing.

     (b) Initiating Enforcement Actions. GSK has the sole and exclusive right to initiate infringement proceedings or take other appropriate actions against an infringement of the GSK Trademarks in the Territory. GSK shall have full control over the conduct of such action, including settlement thereof. XenoPort shall assist GSK and cooperate in any such action at the other’s reasonable request.

     (c) Recovery. GSK shall [... * ...].

     (d) Cooperation. XenoPort shall provide any necessary assistance and cooperate in any such litigation concerting the infringement of the GSK Trademarks at GSK’s reasonable request.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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ARTICLE XIV

TERM AND TERMINATION

     14.1 Term. This Agreement shall commence on the Effective Date, and unless terminated earlier as provided in this Article 14, shall continue in full force and effect on a country-by-country and Product-by-Product basis until [... * ...]. Upon expiration (but not an earlier termination) of this Agreement in each country of the Territory, GSK shall have a perpetual, non-exclusive, fully paid-up, royalty free license under the XenoPort Patents and XenoPort Know-How, and XenoPort Trademarks if GSK exercised the XenoPort Trademarks Option as provided in Article XIII, in such country to make, have made, use, sell, offer for sale and import such Product in such country.

     14.2 Breach. Either Party to this Agreement may terminate this Agreement in the event the other Party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such default shall have continued for [... * ...] after written notice thereof was provided to the breaching Party by the non-breaching Party. Any such termination shall become effective at the end of such [... * ...] unless the breaching Party has cured any such breach or default prior to the expiration of the [... * ...].

     14.3 Termination For Convenience. GSK may terminate this Agreement in its entirety for any reason: (a) upon [... * ...] prior written notice to XenoPort prior to [... * ...]; and (b) upon [... * ...] prior written notice to XenoPort following [... * ...]; provided that GSK shall not [... * ...].

     14.4 Bankruptcy. Either Party may terminate this Agreement in its entirety at any time during the Term by giving written notice to the other Party if the other Party files in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Party or of its assets, or if the other Party is served with an involuntary petition against it, filed in any insolvency proceeding, and such petition will not be dismissed with [... * ...] after the filing thereof, or if the other Party makes a general assignment for the benefit of creditors.

ARTICLE XV

EFFECT OF TERMINATION

     15.1 Accrued Obligations. The expiration or termination of this Agreement for any reason shall not release either Party from any liability that, at the time of such expiration or termination, has already accrued to the other Party or that is attributable to a period prior to such expiration or termination, nor will any termination of this Agreement preclude either Party from pursuing all rights and remedies it may have under this Agreement, or at law or in equity, with respect to breach of this Agreement.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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          15.2 Rights on Termination by XenoPort for Breach. This Section 15.2 shall apply upon any termination of GSK’s rights under this Agreement in its entirety pursuant to Section 14.2 or pursuant to Section 14.3.

          (a) Wind-down Period.

          (i) Development. In the event there are any ongoing clinical trials of any Product in the Territory, at XenoPort’s request, following the date a notice of termination has been issued pursuant to Section 14.2 or 14.3, GSK agrees to continue such trials in the normal course until [... * ...].

          (ii) Commercialization. To avoid a disruption in the supply of Product to patients, if the Agreement is terminated after the First Commercial Sale, GSK, its Affiliates and its Sublicensees shall continue to distribute the Product in each country of the Territory for which Marketing Approval therefor has been obtained, in accordance with the terms and conditions of this Agreement, until [... * ...] the effective date of any termination of this Agreement (the “Wind-down Period”); provided that [... * ...]. Notwithstanding any other provision of this Agreement, during the Wind-down Period, GSK’s and its Affiliates’ and Sublicensees’ rights with respect to the Compound and the Products in the Territory shall be non-exclusive and, without limiting the foregoing, XenoPort shall have the right to engage one or more other distributor(s) and/or licensee(s) of any Product in all or part of the Territory. Any Product sold or disposed by GSK in the Territory during the Wind-down Period shall be subject to applicable payment obligations under Article 6 above. Within [... * ...], GSK shall notify XenoPort of any quantity of the Products remaining in GSK’s inventory and XenoPort shall have the option, upon notice to GSK, to repurchase any such quantities of the Products from GSK at [... * ...].

          (b) Assignment of Regulatory Filings and Marketing Approvals. At XenoPort’s option, which shall be exercised by written notice to GSK, and to the extent permitted under Applicable Law, GSK shall assign or cause to be assigned to XenoPort or its designee (or to the extent not so assignable, GSK shall take all reasonable actions to make available to XenoPort or its designee the benefits of) all Regulatory Filings for all Product in the Territory, including any such Regulatory Filings made or owned by GSK’s Affiliates and/or Sublicensees. In each case, unless otherwise required by any Applicable Law, the foregoing assignment (or availability) shall be made [... * ...] the effective date of such termination, [... * ...]. In addition, GSK shall promptly provide to XenoPort a copy of all Data and GSK Know-How pertaining to all Products in the Territory to the extent not previously provided to XenoPort and XenoPort shall have the right to use and disclose all Data and GSK Know How pertaining to such Products following termination of this Agreement.

          (c) Supply. In addition, GSK shall use Commercially Reasonable Efforts to transition to XenoPort upon XenoPort’s request any arrangement with any contractor from which GSK had arranged to obtain a supply of the Compound or Products. In the event that such materials are manufactured by GSK, then, upon request by XenoPort, GSK shall continue to provide XenoPort with such materials [... * ...]; provided that XenoPort shall use Commercially Reasonable Efforts to

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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obtain such alternative source as soon as practicable. In addition, GSK shall promptly provide to XenoPort a copy of all Data pertaining to the manufacture of the Compound and the Products to the extent not previously provided to XenoPort, during the Term or pursuant to Section 15.2(b), and XenoPort shall have the right to use (and authorize the use of) and to disclose all such Data following termination of this Agreement.

     (d) Transition. Without limiting the foregoing, GSK shall use Commercially Reasonable Efforts to cooperate with XenoPort and/or its designee to effect a smooth and orderly transition in the development, sale and ongoing marketing, promotion and commercialization of the Products in the Territory during the Wind-down Period. Without limiting the foregoing, GSK shall use Commercially Reasonable Efforts to conduct in an expeditious manner any activities to be conducted under this Section 15.2.

     (e) Licenses. Effective as of the date of any notice of termination of this Agreement pursuant to Section 14.2 or 14.3, to the extent requested by XenoPort, XenoPort shall have and is hereby granted by GSK a non-exclusive, worldwide license, with the right to grant sublicenses, under: (i) any Patents owned or Controlled by GSK that are reasonably necessary, for the purposes of making, having made, using, developing, importing, offering for sale, selling, distributing, marketing, promoting and otherwise exploiting the Compound and Products; and (ii) the GSK Know How to make, have made, use, develop, import, offer for sale, sell, distribute, market, promote and otherwise exploit the Compound and Products.

     (f) Royalty Back. In the event of a termination by GSK under Section 14.3 after GSK has obtained a Marketing Approval in a Major Market for a Neuropathic Pain Indication and commercially launched the Product for such Indication in such Major Market, XenoPort shall pay to GSK royalties on Net Sales of such Product by XenoPort, its Affiliates and licenses of such Product, as follows: (i) if GSK achieved Annual Net Sales for such Product in a calendar year prior to termination of [... * ...] XenoPort shall pay to GSK a royalty of [... * ...] of the Net Sales of such Product; and (ii) if GSK achieved Annual Net Sales for such Product in a calendar year prior to termination of [... * ...], then in lieu of the royalty specified in (i) above, XenoPort shall pay to GSK a royalty of [... * ...] of the Net Sales of such Product. Such royalty shall continue for a period of ten years (10) from the date of such termination, or if longer, on a country-by-country basis until the expiration of the last XenoPort Patent that would be infringed by the unlicensed sale of such Product in such country. For such purposes, the provisions of Sections 1.33, 6.3(c) and 6.4, and of Article 7, shall apply mutatis mutandis.

     (g) Return of Materials. Within [... * ...] after the end of the Wind-down Period upon request by XenoPort, GSK shall use Commercially Reasonable Efforts either return to XenoPort or destroy all tangible items comprising, bearing or containing trademarks (including the XenoPort Trademarks), trade names, patents, copyrights, designs, drawings, formulas or other Data, photographs, samples, literature, sales and promotional aids (“Product Materials”) and all Confidential Information of XenoPort, that is in GSK’s possession. Effective upon the end of the Wind-down Period, GSK shall: (i) cease to use all trademarks and trade names of XenoPort

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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(including the XenoPort Trademarks) in the Territory, and all rights granted to GSK hereunder with respect to the Compound and all Products in the Territory shall terminate; and (ii) assign to XenoPort all trademarks and trade names of XenoPort (including the XenoPort Trademarks).

     (h) Sublicensees. Any contracts with Sublicensees of any Product in the Territory engaged by GSK other than GSK’s Affiliates shall be assigned to XenoPort to the extent GSK has the right to do so and XenoPort so requests. In the event such assignment is not requested by XenoPort or GSK does not have the right to do so, then the rights of such Sublicensees shall terminate upon termination of GSK’s rights with respect to the Product in the Territory. GSK shall contractually require that its Affiliates and such Sublicensees (if not assigned to XenoPort pursuant to this Section15.2(h)) shall use Commercially Reasonable Efforts to transition all Products back to XenoPort in the manner set forth in this Section 15.2 as if such Affiliate or Sublicensee were named herein.

     (i) Termination of XenoPort’s Rights to Detail the REQUIP™ Products. Within [... * ...], upon request by GSK, XenoPort shall either return to GSK or destroy all tangible items comprising, bearing or containing trademarks, trade names, patents, copyrights, designs, drawings, formulas or photographs, Samples, literature, and Promotional Materials relating solely to the REQUIP™ Products (the “REQUIP™ Materials”) and Confidential Information of GSK directed to the REQUIP™ Products, that is in XenoPort’s possession. Effective [... * ...], XenoPort shall cease to use all trademarks and trade names of GSK relating solely to the REQUIP™ Products in the Territory, and all rights granted to XenoPort hereunder with respect to the REQUIP™ Products in the Territory shall terminate.

     15.3 Rights Upon Termination for Bankruptcy. Notwithstanding the bankruptcy of XenoPort, or the impairment of performance by XenoPort of its obligations under this Agreement as a result of bankruptcy or insolvency of XenoPort, upon the termination of this Agreement by GSK pursuant to Section 14.4, GSK will be entitled to retain all rights and licenses granted to GSK by XenoPort under this Agreement. All rights and licenses granted under or pursuant to this Agreement by XenoPort to GSK are, and will otherwise be deemed to be, for purposes of Article 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Article 101(52) of the Bankruptcy Code. The Parties agree that GSK, as a licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against XenoPort under the Bankruptcy Code, GSK will be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in its possession, will be promptly delivered to GSK (i) upon any such commencement of a bankruptcy proceeding upon written request therefore by GSK, unless XenoPort elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of XenoPort upon written request therefore by GSK.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     15.4 Additional Rights. The expiration or termination of this Agreement for any reason shall not relieve the Parties of any obligation (including any payments) that accrued prior to such expiration or termination. Further, neither Party will be precluded from pursuing all rights and remedies that it may have hereunder at law or in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.

     15.5 Survival. Upon the expiration or termination of this Agreement, all rights and obligations of the Parties under this Agreement shall terminate except those described in the following provisions: [... * ...] In addition: (a) [... * ...] and (b) [... * ...] shall survive with respect to [... * ...].

ARTICLE XVI

REPRESENTATIONS, WARRANTIES AND COVENANTS

     16.1 General Representations. Each Party hereby represents and warrants to the other Party as of the Effective Date as follows:

     (a) Duly Organized. Such Party is a corporation duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation, is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and failure to have such would prevent such Party from performing its obligations under this Agreement.

     (b) Due Execution; Binding Agreement. This Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party have been duly authorized by all necessary corporate action and do not and will not: (i) require any consent or approval of its stockholders; (ii) to such Party’s knowledge, violate any Applicable Law, order, writ, judgment, decree, determination or award of any court, governmental body or administrative or other agency having jurisdiction over such Party; nor (iii) conflict with, or constitute a default under, any agreement, instrument or understanding, oral or written, to which such Party is a party or by which it is bound.

     (c) No Other Affiliates. As of the Effective Date, such Party does not have any Affiliates that are not Controlled Affiliates.

     16.2 Representations and Warranties of XenoPort. XenoPort represents, warrants to GSK that, as of the Effective Date:

     (a) it has the full right and authority to grant the rights and licenses as provided herein;

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     (b) it has not previously granted any right, license or interest in or to the XenoPort Patents or XenoPort Trademarks, or any portion thereof, that is in conflict with the rights or licenses granted to GSK under this Agreement;

     (c) to its knowledge, there are no actual, pending, anticipated, alleged or threatened actions, suits, claims, interference or governmental investigations involving the Compound, the XenoPort Patents, the XenoPort Know-How or the XenoPort Trademarks by or against XenoPort, or any of its Affiliates; provided that no representation or warranty is made with respect to any Patent rights of a Third Party of which GSK is aware as of the Effective Date. In particular, to its best knowledge, there is no pending or threatened product liability action nor intellectual property right litigation in relation to the Compound;

     (d) subject to Article 19, all necessary consents, approvals and authorizations of all Regulatory Authorities, other governmental authorities and other persons or entities required to be obtained by XenoPort in order to enter into this Agreement have been obtained; to its knowledge, there is no actual, pending, anticipated, alleged or threatened infringement by a Third Party of any of the XenoPort Patents, the XenoPort Know-How or the XenoPort Trademarks;

     (e) to its knowledge, none of the issued XenoPort Patents or applications or registrations for the XenoPort Trademarks are invalid or unenforceable; and

     (f) it has not, up through and including the Effective Date, knowingly withheld any material information in its possession from GSK in response to GSK’s reasonable inquiries in connection with GSK’s due diligence relating to the Compound, this Agreement and the underlying transaction, and to the best of its knowledge, the information related to the Compound that XenoPort has provided to GSK prior to the Effective Date is up-to-date and accurate in all material respects.

     16.3 Representations and Warranties of GSK. GSK represents and warrants to XenoPort that, as of the Effective Date:

     (a) it has the full right and authority to grant the rights granted herein;

     (b) subject to Article 19, all necessary consents, approvals and authorizations of all Regulatory Authorities, other governmental authorities and other persons or entities required to be obtained by GSK in order to enter into this Agreement have been obtained; and

     (c) GSK does not have any knowledge that any of XenoPort’s representations and warranties set forth in Sections 16.1 and 16.2 above are inaccurate.

     16.4 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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PARTICULAR PURPOSE, NONINFRINGEMENT OR VALIDITY OF ANY PATENTS ISSUED OR PENDING.

ARTICLE XVII

INDEMNIFICATION

     17.1 Indemnification of XenoPort. GSK shall indemnify and hold harmless each of XenoPort, its Affiliates and the directors, officers, stockholders and employees of such entities and the successors and assigns of any of the foregoing (the “XenoPort Indemnitees”), from and against any and all liabilities, damages, penalties, fines, costs, expenses (including, reasonable attorneys’ fees and other expenses of litigation) (“Liabilities”) from any claims, actions, suits or proceedings brought by a Third Party (a “Third Party Claim”) incurred by any XenoPort Indemnitee, arising from, or occurring as a result of: (a) the manufacture, use, marketing, distribution, importation or sale of any Product by GSK, its Affiliates or Sublicensees in the Territory; (b) gross negligence or willful misconduct in the conduct of the research and development activities in the Territory conducted by GSK, or any of its Affiliates or Sublicensees, related to the Compound and/or any Product; and (c) any material breach of any representations, warranties or covenants by GSK in Article 16 above; except to the extent such Third Party Claims fall within the scope of XenoPort’s indemnification obligations set forth in Section 17.2 below or result from the gross negligence or fault of a XenoPort Indemnitee. In the event XenoPort exercises the Co-Promotion Option and is Co-Promoting Product and/or the REQUIP™ Products, GSK’s indemnification obligations set forth in this Section 17.1 shall [... * ...].

     17.2 Indemnification of GSK. XenoPort shall indemnify and hold harmless each of GSK, its Affiliates and Sublicensees and the directors, officers and employees of GSK, its Affiliates and Sublicensees and the successors and assigns of any of the foregoing (the “GSK Indemnitees”), from and against any and all Liabilities from any Third Party Claims incurred by any GSK Indemnitee, arising from, or occurring as a result of (a) gross negligence or willful misconduct in the conduct of the research and development activities conducted by XenoPort or its Affiliates related to Compound and/or any Product, (b) the use, marketing, distribution, or sale of any Product by XenoPort, its Affiliates or Sublicensees in the Asian Territory, or (c) any material breach of any representations, warranties or covenants by XenoPort in Article 16 above, except to the extent such Third Party Claims fall within the scope of GSK’s indemnification obligations set forth in Section 17.1 above or result from the fault of an GSK Indemnitee.

     17.3 Procedure. A Party that intends to claim indemnification under this Article 17 (the “Indemnitee”) shall promptly notify the other Party (the “Indemnitor”) in writing of the assertion or the commencement of Third Party Claim and will provide the Indemnitor such information with respect thereto that the Indemnitor may reasonably request. The Indemnitor shall be entitled to participate in the defense of any Third Party Claim and, subject to the limitations set forth in this Section, shall be entitled to control and appoint lead counsel for such defense, in each case at its expense. If the Indemnitor shall assume the control of the defense of any Third Party

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Claim in accordance with the provisions of this Section 17.3, the Indemnitor shall obtain the prior written consent of the Indemnitee (which shall not be unreasonably withheld) before entering into any settlement of such Third Party Claim. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any action with respect to a Third Party Claim, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 17.3, but the omission to so deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability that it may have to any Indemnitee otherwise than under this Section 17.3. The Indemnitee under this Section 17.3 shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action with respect to a Third Party Claim covered by this indemnification.

ARTICLE XVIII

DISPUTE RESOLUTION

     18.1 Dispute Resolution. The Parties agree that with respect to any disputes that are not within the authority of the ESC, JDC or JCC as provided in Article 3 (all such disputes that are not within the authority of the ESC, JDC or JCC would include disputes arising with respect to the interpretation, enforcement, termination or invalidity of this Agreement, and for the purposes of this Article 18, each a “Dispute”), the Dispute shall first be presented to the Chief Executive Officer of XenoPort and the Chief Operating Officer of GSK, or their respective designees for resolution. If the Chief Executive Officers, or their respective designees, cannot resolve the Dispute within [... * ...] of the request to do so, either Party may initiate legal proceedings with respect thereto. Notwithstanding anything in this Article 18 to the contrary, XenoPort and GSK shall each have the right to apply to any court of competent jurisdiction for appropriate interim or provisional relief, as necessary to protect the rights or property of that Party.

     18.2 Arbitration of Certain Limited Disputes. If: (i) the Parties do not agree upon: (A) [... * ...]; (ii) there is a dispute as to the interpretation, enforcement or breach of [... * ...]; or (iii) the Parties otherwise mutually agree to the resolution of a dispute by binding arbitration; in each case, such dispute shall, upon written notice of either Party to the other, be resolved by final, binding arbitration in accordance with the provisions of this Section 18.2. The arbitration shall be conducted by the Judicial Arbitration and Mediation Services, Inc. (or any successor entity thereto) (“JAMS”) under its rules of arbitration then in effect, except as modified in this Agreement. The arbitration shall be conducted in the English language, by a single arbitrator. If the Parties are unable to agree on an arbitrator, the arbitrator shall be selected in accordance with the JAMS rules, or if the JAMS Rules do not provide for such selection, by the chief executive of JAMS. At his or her election, the arbitrator may engage an independent expert with experience in the subject matter of the Dispute to advise the arbitrator.

     (a) With respect to any dispute to be resolved under this Section 18.2, the Parties and the arbitrator shall use all reasonable efforts to complete any such arbitration within [... * ...] from the issuance of notice of a referral of any such dispute to arbitration. The arbitrator shall

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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determine what discovery will be permitted, consistent with the goal of limiting the cost and time that the Parties must expend for discovery; provided that the arbitrator shall permit such discovery as he or she deems necessary to permit an equitable resolution of the Dispute.

     (b) The arbitration under this Section 18.2 with respect to the matter described in (i) above shall [... * ...] Accordingly, [... * ...] with respect to [... * ...] the arbitrator shall [... * ...].

     (c) The Parties agree that the decision of the arbitrator shall be the binding remedy between them regarding the dispute presented to the arbitrator. Any decision of the arbitrator may be entered in a court of competent jurisdiction for judicial recognition of the decision and an order of enforcement. The arbitration proceedings and the decision of the arbitrator shall not be made public without the joint consent of the Parties and each Party shall maintain the confidentiality of such proceedings and decision unless each Party otherwise agrees in writing; provided that either Party may make such disclosures as are permitted for Confidential Information of the other Party under Article 11 above.

     (d) Unless otherwise mutually agreed upon by the Parties, the arbitration proceedings shall be conducted in New York, New York. The Parties agree that they shall share equally the cost of the arbitration filing and hearing fees, the cost of the independent expert retained by the arbitrator, and the cost of the arbitrator and administrative fees of JAMS. Each Party shall bear its own costs and attorneys’ and witnesses’ fees and associated costs and expenses.

ARTICLE XIX

HART-SCOTT-RODINO

     19.1 HSR Act Compliance. Notwithstanding anything to the contrary in this Agreement, this Agreement shall be binding upon the Parties as of the Effective Date; however, the provisions of Articles 2-7 shall not take effect, and commencement of the collaboration shall not occur, until the HSR Clearance Date. As used herein, the “HSR Clearance Date” shall mean such time as: (a) the Parties shall have complied with all applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended the (“HSR Act”); (b) the waiting period under the HSR Act shall have expired or earlier been terminated; (c) no judicial or administrative proceeding opposing consummation of all or any part of this Agreement shall be pending; (d) no injunction (whether temporary, preliminary or permanent) prohibiting consummation of the transactions contemplated by this Agreement or any material portion hereof shall be in effect; and (e) no requirements or conditions shall have been formally requested or imposed by the DOJ or FTC in connection therewith that are not reasonably and mutually satisfactory to the Parties (collectively, the “HSR Conditions”). In the event that the HSR Conditions are not met within [... * ...], this Agreement shall be null and void.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     19.2 HSR Filing. Both Parties shall promptly file following execution of this Agreement their respective pre-merger notification and report forms with the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) pursuant to the HSR Act which forms shall specifically request early termination of the initial HSR Act waiting period. GSK shall pay the filing fee.

     19.3 Cooperation.

     (a) The Parties shall use their Commercially Reasonable Efforts to obtain prompt clearance required under the HSR Act for the consummation of this Agreement and the transactions contemplated hereby and shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request; provided, however, that neither Party shall be required to consent to the divestiture or other disposition of any of its or its Affiliates’ assets or to consent to any other structural or conduct remedy, and each Party and its Affiliates shall have no obligation to contest, administratively or in court, any ruling, order or other action of the FTC or DOJ or any third party respecting the transactions contemplated by this Agreement.

     (b) The Parties hereto commit to instruct their respective counsel to cooperate with each other and use Commercially Reasonable Efforts to facilitate and expedite the identification and resolution of any such issues and, consequently, the expiration of the applicable HSR Act waiting period. Said Commercially Reasonable Efforts and cooperation include, but are not limited to, counsel’s undertaking: (i) to keep each other appropriately informed of communications from and to personnel of the reviewing antitrust authority; and (ii) to confer with each other regarding appropriate contacts with and response to personnel of the FTC or DOJ.

ARTICLE XX

GENERAL PROVISIONS

     20.1 Force Majeure. If the performance of any part of this Agreement (except for any payment obligation under this Agreement) by either Party is prevented, restricted, interfered with or delayed by reason of force majeure (including, fire, flood, embargo, power shortage or failure, acts of war, insurrection, riot, terrorism, strike, lockout or other labor disturbance or acts of God), the Party so affected shall, upon giving written notice to the other Party, be excused from such performance to the extent of such prevention, restriction, interference or delay; provided that the affected Party shall use its reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed.

     20.2 Governing Law. This Agreement and all questions regarding its validity or interpretation, or the breach or performance of this Agreement, shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without reference to conflict of law principles.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     20.3 Waiver of Breach. Except as otherwise expressly provided in this Agreement, any term of this Agreement may be waived only by a written instrument executed by a duly authorized representative of the Party waiving compliance. The delay or failure of either Party at any time to require performance of any provision of this Agreement shall in no manner affect such Party’s rights at a later time to enforce the same. No waiver by either Party of any condition or term in any one or more instances shall be construed as a further or continuing waiver of such condition or term or of another condition or term.

     20.4 Modification. No amendment or modification of any provision of this Agreement shall be effective unless in writing signed by a duly authorized representative of each Party. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by a duly authorized representative of each Party.

     20.5 Severability. In the event any provision of this Agreement should be held invalid, illegal or unenforceable in any jurisdiction, the Parties shall negotiate in good faith a valid, legal and enforceable substitute provision that most nearly reflects the original intent of the Parties and all other provisions of this Agreement shall remain in full force and effect in such jurisdiction. Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such provision in any other jurisdiction. In the event a Party seeks to avoid a provision of this Agreement by asserting that such provision is invalid, illegal or otherwise unenforceable, the other Party shall have the right to terminate this Agreement upon [... * ....] prior written notice to the asserting Party, unless such assertion is eliminated and the effect of such assertion cured within such [... * ...] period. Any termination in accordance with the foregoing shall be deemed a termination pursuant to Section 14.3 if the Party who made the assertion was GSK, and shall be deemed a termination under Section 14.2 by reason of a breach by XenoPort, if XenoPort is the Party who made such assertion.

     20.6 Entire Agreement. This Agreement (including the Exhibits attached hereto) constitutes the entire agreement between the Parties relating to its subject matter and supersedes all prior or contemporaneous agreements, understandings or representations, either written or oral, between XenoPort and GSK with respect to such subject matter.

     20.7 Notices. Unless otherwise agreed by the Parties or specified in this Agreement, all communications between the Parties relating to, and all written documentation to be prepared and provided under, this Agreement shall be in the English language. Any notice required or permitted under this Agreement shall be in writing in the English language: (a) delivered personally; (b) sent by registered or certified mail (return receipt requested and postage prepaid); (c) sent by express courier service providing evidence of receipt, postage pre-paid where applicable; or (d) sent by facsimile (receipt verified and a copy promptly sent by another permissible method of providing notice described in paragraphs (b), (c) or (d) above), to the following addresses of the Parties or such other address for a Party as may be specified by like notice:

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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To XenoPort:	To GSK:
XenoPort, Inc.	Glaxo Group Limited
3410 Central Expressway	Glaxo Wellcome House, Berkeley Avenue
Santa Clara, CA 95051	Greenford, Middlesex, UB6 0NN, England
Telephone: (408) 616-7200	Telephone: 44 20 8 047 4501
Facsimile: (408) 616-7211	Facsimile: 44 20 8 047 6904
Attention: Secretary	Attention: Company Secretary
With a copy to:	With a copy to:
Wilson, Sonsini, Goodrich & Rosati	GlaxoSmithKline
650 Page Mill Road	709 Swedeland Road
Palo Alto, CA 94304	P.O. Box 1539
Telephone: (650) 493-9300	King of Prussia, PA 19406-0939 USA
Facsimile: (650) 493-6811	Telephone: (610) 270-5397
Attention: Kenneth A. Clark	Facsimile: (610) 270-5880
	Attention : Senior Vice President,
	Worldwide Business Development
	and
	GlaxoSmithKline
	2301 Renaissance Boulevard
	Mailcode RN0220
	King of Prussia, PA 19406-2772
	Telephone: (610) 787-3626
	Facsimile: (610) 787-7084
	Attention: Vice President and Associate General
	Counsel, Business Development Transactions

     Any notice required or permitted to be given concerning this Agreement shall be effective upon receipt by the Party to whom it is addressed or within seven (7) days of dispatch whichever is earlier.

          20.8 Assignment. This Agreement shall not be assignable by either Party to any Third Party hereto without the written consent of the other Party hereto; except either Party may assign this Agreement without the other Party’s consent to an entity that acquires substantially all of the business or assets of the assigning Party, whether by merger, acquisition or otherwise, provided that the Party to whom this Agreement is assigned assumes this Agreement in writing or by operation of law. In addition, either Party shall have the right to assign this Agreement to an

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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Affiliate upon written notice to the non-assigning Party; provided that the assigning Party guarantees the performance of this Agreement by such Affiliate; and further provided that if the non-assigning Party reasonably believes such assignment could result in material adverse tax consequences to the non-assigning Party, such assignment shall not be made without the non-assigning Party’s consent. Subject to the foregoing, this Agreement shall inure to the benefit of each Party, its successors and permitted assigns. Any assignment of this Agreement in contravention of this Section 20.8 shall be null and void.

     20.9 No Partnership or Joint Venture. Nothing in this Agreement is intended, or shall be deemed, to establish a joint venture or partnership between XenoPort and GSK. Neither Party to this Agreement shall have any express or implied right or authority to assume or create any obligations on behalf of, or in the name of, the other Party, or to bind the other Party to any contract, agreement or undertaking with any Third Party.

     20.10 Interpretation. The captions to the several Articles and Sections of this Agreement are not a part of this Agreement, but are included for convenience of reference and shall not affect its meaning or interpretation. In this Agreement: (a) the word “including” shall be deemed to be followed by the phrase “without limitation” or like expression; (b) the singular shall include the plural and vice versa; and (c) masculine, feminine and neuter pronouns and expressions shall be interchangeable. Each accounting term used herein that is not specifically defined herein shall have the meaning given to it under International Generally Accepted Accounting Principles. All references to a “business day” or “business days” in this Agreement means any day other than a day which is a Saturday, a Sunday or any day banks are authorized or required to be closed in the United States or in the United Kingdom.

     20.11 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XenoPort and GSK are subject to prior compliance with the export regulations of the United States, the European Union or any other relevant country and such other laws and regulations in effect in the United States, the European Union or any other relevant country as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the governments of the United States, the countries within the European Union and any other relevant countries. XenoPort and GSK shall cooperate with each other and shall provide assistance to the other as reasonably necessary to obtain any required approvals.

     20.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

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     IN WITNESS WHEREOF, the Parties have executed this Development and Commercialization Agreement as of the date first set forth above.

XENOPORT, INC.
BY: NAME:	/s/ Ronald W. Barrett Ronald W. Barrett
TITLE:	Chief Executive Officer
GLAXO GROUP LIMITED
BY: NAME:	/s/ JP Garnier JP Garnier
TITLE:	Chief Executive Officer

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 1.13

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 1.59

XenoPort Patents

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 1.60

XenoPort Trademarks

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 2.3(b)

Phase I Activities

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 2.3(c)

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 4.1

Initial Development Plan for Restless Legs Syndrome

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 4.1 (contd.)

Initial Development Plan for Neuropathic Pain

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 4.3

Clinical Studies and Activities

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 5

Co-Promotion Agreement Terms

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 6.5

Financial Planning, Accounting and Reporting Methodologies

(Operating Profit or Loss)

This Exhibit 6.5 addresses the financial planning, accounting policies and procedures to be followed under the Agreement in determining sharing of revenue and expenses and related share of Operating Profit or Loss in the United States. Terms not defined in this Exhibit 6.5 shall have the meanings set forth in the Agreement.

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 10.1

Supply Transition – Technical Transfer Requirements

Documentation and materials to be supplied by XenoPort as part of technical transfer requirements include, but are not limited to, the follow:

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 11.3

Press Release

(See publicly filed press release.)

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EXHIBIT 12.2

XenoPort Prosecution and Maintenance

[... * ...]

* Certain Confidential Information Contained In This Document, Marked By Brackets, Is Filed With The Securities And Exchange Commission Pursuant To Rule 24b-2 Of The Securities Exchange Act Of 1934, As Amended.

EX-10.29.1

Exhibit 10.29.1

[XenoPort Letterhead]

May 4, 2007

Mr. Simon Bicknell
Company Secretary
Glaxo Group Limited
Glaxo Wellcome House
Berkeley Avenue
Greenford, Middlesex, UB6 0NN
UNITED KINGDOM

Re: First Amendment to Development and Commercialization Agreement between XenoPort, Inc. (“XenoPort”) and Glaxo Group Limited (“GSK”) dated February 7, 2007 (“Agreement”)

Dear Mr. Bicknell:

This letter (the “First Amendment”) is to confirm the agreement between XenoPort and GSK with respect to an amendment to the Agreement as set out in Paragraphs 1 and 2 below. All capitalized terms not otherwise defined in this First Amendment shall have the respective meanings given to such terms in the Agreement.

     1. XenoPort and GSK acknowledge and agree that by email dated February 26, 2007 from Michael Verne of the Pre-merger Office of the Federal Trade Commission to Kerri Chase of Cleary Gottlieb Steen & Hamilton LLP, the Federal Trade Commission confirmed that the license granted to GSK by XenoPort under the Agreement is not exclusive under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and thus, the requirements of the HSR Act are not applicable to the activities of the Parties contemplated in the Agreement. Accordingly:

          (a) no pre-merger notification and report forms will be filed by either Party with the Federal Trade Commission or the Department of Justice;

          (b) the obligations of XenoPort and GSK under Sections 19.2 and 19.3 of the Agreement shall be deemed to have been fulfilled;

          (c) the HSR Conditions specified in Section 19.1 of the Agreement shall been deemed to have been satisfied; and

          (d) the provisions of Articles 2 through 7 shall take effect and the collaboration shall commence as of March 2, 2007.

     2. XenoPort and GSK agree that the Agreement shall be amended as follows:

          (a) The words “the HSR Clearance Date” in Section 3.1(a) of the Agreement shall be deleted and replaced with the following words: “March 2, 2007 (the “Closing Date”)”; and

          (b) All references to “the HSR Clearance Date” in Sections 3.2(a), 3.7, 4.1(a), 4.6(a), 4.8(a), 4.12(a), 4.12(b), 6.1, 10.1, 10.2 and 13.2 of the Agreement shall be replaced with the words “the Closing Date” in each such Section.

     Except as specifically provided in this First Amendment, no provision of the Agreement shall be modified or amended hereby and all provisions of the Agreement shall remain in full force and effect. The Agreement, as specifically modified and amended by this First Amendment, is hereby confirmed and approved. This First Amendment and all questions regarding its validity or interpretation shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without reference to conflict of law principles.

     Please confirm GSK’s acceptance of, and agreement with, the this First Amendment by signing, or having an authorized representative of GSK sign, two (2) copies of this First Amendment and return one (1) original copy and one (1) photocopy of the First Amendment to:

Originally executed copy to:	And a copy to:
XenoPort, Inc.	Wilson, Sonsini, Goodrich & Rosati
3410 Central Expressway	650 Page Mill Road
Santa Clara, CA 95051	Palo Alto, CA 94304
Facsimile: (408) 616-7211	Facsimile: (650) 493-6811
Attention: Secretary	Attention: Kenneth A. Clark
Yours sincerely,
/s/ William J. Rieflin William J. Rieflin
President

ACKNOWLEDGED AND AGREED BY GLAXO GROUP LIMITED:

/s/ Victoria Whyte
Name:	Victoria Whyte
Title:	Assistant Secretary
Date:	May 8, 2007
cc:	Adrian Rawcliffe
	Senior Vice President, Worldwide Business Development, GlaxoSmithKline
cc:	Carol Ashe
	Vice President and Associate General Counsel, Business Development Transactions,
	GlaxoSmithKline

- 2 -

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Ronald W. Barrett, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of XenoPort, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals:
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Ronald W. Barrett

Ronald W. Barrett

Chief Executive Officer and Director

May 9, 2007

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, William G. Harris, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of XenoPort, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(d)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals:
(e)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ William G. Harris

William G. Harris

Senior Vice President of Finance and Chief Financial Officer

May 9, 2007

EX-32.1

EXHIBIT 32.1

CERTIFICATION (1)

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), Ronald W. Barrett, Chief Executive Officer of XenoPort, Inc. (the “Company”), and William G. Harris, Senior Vice President of Finance and Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 9th day of May, 2007.

/s/ Ronald W. Barrett  

Ronald W. Barrett 

Chief Executive Officer and Director 

/s/ William G. Harris  

William G. Harris 

Senior Vice President of Finance and Chief
Financial Officer 

(1) This certification accompanies the quarterly report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of XenoPort, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.