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Expert Financial Analysis and Reporting

Portola: Management Guides to a Highly Probable US Launch of Bevyexxa in the December to February Timeframe (PTLA, Buy, $50.52)

Perspective on Stock Price Behavior

I began coverage of Portola with a Buy in a May 4, 2017 report at a price of $40.05. The basis for my recommendation was that PTLA had extremely impressive prospects based on the pending approvals in the US and Europe of two (not one) blockbuster products: Bevyexxa and AndexXa. However, the receipt of CRLs for both products had delayed approvals and led to considerable investor uncertainty and disappointment. I believed that the Company could resolve the issues raised by the FDA and gain approvals for both products. In that report, I did an in-depth analysis of Portola that led me to project a 2021 price target of $426.

Indeed Bevyexxa was approved in the US in late June and this resulted in the stock  price increasing in one day from $38 to $59.The stock then continued to move higher reaching a price of $66 on July 21, 2017. At the time of approval, management had issued guidance that Bevyexxa would be launched in the US in the September to November time frame. In early September the stock was trading at $63 when PTLA informed investors of a manufacturing issue with Bevyexxa that created uncertainty about the timing of the launch; this caused the stock to slide to $57 on September 18. Then Adam F-stein wrote a negative blog suggesting (wrongly of course) that draft clinical guidelines would prevent Bevyexxa from ever being approved. This crashed the stock from $57 on September 18 to $52 on September 19. See my report Reiterating Buy and Refuting Recent Negative Blog by Adam F-stein. Since the F-stein blog the stock has continued to drift steadily down reaching a low of $47.50 on October 26.

Investment Opinion

PTLA announced yesterday that it has now reached an agreement in principal with the FDA that should allow Bevyexxa to be launched in the US in December at the earliest and February at the latest; remember that original guidance was for September to November. With all of these huge fluctuations in price, the only change in the fundamentals of PTLA from the time of my initiation report has been a delay in the launch of Bevyexxa from September to November to December to February. I consider this as immaterial and reaffirm my Buy and 2021 price target of $426.

In looking ahead, the next issue for investors will be the launches of Bevyexxa and AndexXa in the US and Europe. This always creates angst as managed care raises hurdles for reimbursement that often retards sales in the first year or so of launch. Expect to hear some talk that the sales are disappointing, but as I said earlier I think that both products will go on blockbuster sales status. Very importantly PTLA had $597 million of cash as of September 30. The launches will result in a huge cash burn but PTLA says that this cash position will carry the Company through the launches of Bevyexxa and AndexXa into 2019. There will be enormous sums of additional capital required beyond the current cash position. This could be raised through a combination of equity offerings, partnering and other financial instruments. Remember that Portola has not yet partnered Bevyexxa and AndexXa.

I think that there is a very real possibility that PTLA will be acquired by a large bioharma company within the next two years. The combination of Bevyexxa and AndexXa could make a meaningful impact on even the largest of these companies. The Portola Board might feel that the optimum course for shareholders is to sell to a larger company that has infrastructure in place to maximize the commercialization of these important drugs rather than building its own. My guess is that the Company could fetch perhaps $100 per share after the approval in 2018 of Bevyexxa and AndexXa in the US and Europe derisk the investment. This would represent a takeout price of about $6 billion.

Bevyexxa Update is Encouraging

During the third quarter conference call of November 6, Portola provided an encouraging update on the potential for resolving a manufacturing issue that has delayed the launch of Bevyexxa (betrixaban) from the initial guidance of September to November given to investors after the approval in late June. Portola said that it has reached an agreement in principal with the FDA pertaining to the release of manufactured Bevyxxa product and is now awaiting the final decision. PTLA is required to submit some assay validation reports to complete the FDA's review. The PDUFA date for the review is November 30, but the Company says that the FDA may need another 60 days to review the reports which point to a final agreement by late January or early February 2018. In Europe, Portola expects a CHMP decision on Bevyxxa in Q4, 2017 with an EMA decision in Q1, 2018.

If this representation by the Company is correct and I see no reason why it would not be, the launch of Bevyexxa could be somewhere in the December 2017 to February 2018 time frame. Such approval should take a major weight off the stock price. Any dealing with the FDA brings the risk of meaningful delays and investor uncertainty. That is s sigh of relief you are hearing from me.

AndexXa Status

The other key part of the Portola investment story is AndexXa, for which the BLA was refiled on August 3, 2017 and which has a PDUFA date of February 3, 2018. I think that the probability of approval is very high. If the drug is approved in the US, PTLA will receive a $100 million milestone payment from Health Care Royalty Partners. Portola filed for European approval in August 2017 and expects approval in early 2018. The launch in the US is expected in the first half of 2018 and in Europe in the second half of 2018. The Company is indicating a launch price of $10,000 to $50,000.

Financial Issues

Portola reported a Q3, 2017 net loss of $83 million and ended Q3, 2017 with $597.million in cash. Management says that the current cash will fund operations through the launches of Bevyexxa and AndexXa and into 2019. As previously noted, the approval On AndexXa in the US will lead to a $100 million milestone payment. . .

The Bevyexxa Manufacturing Issue

I discussed the manufacturing issue at length in my report September 4 Conference Call Provides Update on Potential Launch Date for Bevyxxa and Announces Price. If you want more detail on the manufacturing issue, you may want to review that note. Portola has in inventory over a metric ton of the drug. It believes that this is sufficient to satisfy demand through 2018. It has successfully manufactured three validation batches using a modified, more efficient, manufacturing process that will be used for long term production of Bevyexxa. It expects to be able to file for approval in late 2017 and anticipates a four month review period.


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