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Expert Financial Analysis and Reporting

Portola Pharmaceuticals: 2019 Is All About the Sales Trajectory of AndexXa (PTLA, $15.46, Buy)

Investment Overview

With the disappointing launch of Bevyexxa, almost all of the market value of Portola is based on AndexXa which was approved on May 3, 2018 and launched in June. In 3Q, 2018, AndexXa achieved sales of $7.7 million. Investors are trying to estimate potential sales in 2019 and beyond, but at this early date, there is considerable uncertainty. Almost all new product launches in recent years have been disappointingly slow due to ever increasing reimbursement hurdles so there is natural trepidation that this will be the case with AndexXa. I think that there is a good chance that the AndexXa launch will surprise investors on the upside. The current depressed stock price doesn't reflect that possibility.

There is one important near term catalyst for Portola. AndexXa was approved using the drug ingredient made with a first generation (Gen1) manufacturing process. The Gen 1 process is inefficient and can produce only limited amounts of AndexXa which has limited availability to a small number of hospitals. The Company has developed a much more efficient process called Gen 2 and has filed a Prior Approval Supplement (PAS), which if approved would be used to make all future drug supply. The PDUFA date for the PAS is December 31, 2018

The initial launch is constrained because of the Gen 1 supply issue so AndexXa was first targeted in May to 40 hospitals and then was expanded in September to 100. The ultimate market in the US is 600 tier 1 and 900 tier 2 hospitals. Gen 2’s much greater supply should allow the Company to expand the number of hospitals targeted rapidly. It will not immediately be able to target all of these 1500 hospitals but it can certainly expand meaningfully. My guess is that the Company could be marketing to 300 or 400 hospitals by the end of 2019. If Gen2 is not approved, marketing may remain limited to 100 hospitals. Portola states that it already has enough Gen 2 manufactured drug in inventory to meet the anticipated demand for the next two years.

Management has publicly expressed great confidence that the PAS will be approved on December 31, 2019. As discussed later in this report, it feels the review has gone smoothly. However, there is always uncertainty when dealing with the FDA.

Thinking about AndexXa Sales in 2019 and Beyond

A primary purpose of this report is to think about potential sales for AndexXa in 2019 and beyond. My analysis is based primarily on comments made by management about AndexXa in the 3Q, 2018 conference call and in recent presentations at brokerage conferences. If you haven’t done much research on Portola, you may want to refer to my September 28, 2018 update on the Company as this report builds on the analysis of that report.

Portola reported $7.7 million of AndexXa sales in 3Q, 2018 (period ended September 30). At an estimated price of $28,000 per dose this would represent shipments that could treat about 275 patients ($7.7 million divided by the $28,000 estimated price per patient). Management has said that most of the sales occurred in September without defining most. I am guessing that was perhaps $4 to $5 million. Management is providing no numerical guidance on sales going forward so this is all we have to work on. In we annualize quarterly sales of $7.7 million this suggests annualized sales of $31 million. If we annualize my guesstimated September sales number of $4 to $5 million, the annualized sales rate is $48 to $60 million. This is not a lot to go on so let’s think about some of the issues that will affect the sales trajectory.

  1.       Patients on the Factor Xa oral anticoagulants can sometimes face life threatening bleeds for which there is no accepted or proven standard of care. AndexXa addresses this extremely significant unmet medical need.
  2.       The initial Gen 1 manufacturing can only produce very limited supply so the Company initially targeted about 40 accounts. Management has said that it believes that ultimately it will market to 600 tier 1 accounts and 900 tier 2. These 40 accounts are just a small fraction of the addressable account base. As the quarter progressed, management became more comfortable on handling the limited Gen 1 supply and expanded marketing to 100 hospitals, most of the expansion came in September.
  3.       One of the first questions an analyst might ask is how much of 3Q sales were stockpiling as opposed to actual usage in a patient. There is no way to directly judge this, but I would point out that this product costs about $28,000 per patient. Also, Portola provides drop shipments so that if a dose is used it can be replaced, probably within a day or so. I would think that most hospitals would only purchase the product if they anticipated using it and would manage their inventory to meet anticipated patient need. The expense of the product and the drop ship availability suggests to me that most of the product being shipped will be used quickly as opposed to sitting on a shelf for months.
  4.       The Company reported that 40% (40 hospitals) have reordered. This was probably from the first 40 hospitals targeted. It is hard to put this in perspective.
  5.       The first 40 hospitals targeted mostly have good knowledge or experience with the drug, i.e. they were well up the learning curve as some participated in the phase 3 trials. It may take longer for other hospitals to become comfortable.
  6.       The sales force was initially focused on trying to positon Bevyexxa and that resulted in spending almost all of their time on trying to gain traction for Bevyexxa at the expense of AndexXa. The attention of the sales force was divided in most of the third quarter.
  7.       Based primarily on anecdotal evidence, the initial use of AndexXa appears to be in life threatening intracranial hemorrhages. This is to be expected as physicians in the early stage of evaluating a new drug primarily use it in the most severe cases. Over time, usage will broaden to less severe cases.
  8.       The CMS new technology add-on payment (NTAP) which went into effect on October 1 will be beneficial for hospitals, as it provides direct reimbursement from CMS. It can cover up to 50% of the 28,000 cost of AndexXa or $14,000. This is definitely a positive, but is hard to quantify the effect.
  9.         There is a strong possibility that the Gen 2 manufacturing could be approved at the PDUFA date of December 31, 2018. Portola has already built an inventory of Gen 2 that can supply anticipated demand for two years so if Gen 2 is approved the supply issue goes away. Management seems about as confident of approval as possible. I discuss this later in this report, but there is no such thing as a sure thing in dealing with the FDA.
  10. Currently Portola has 78 reps promoting AndexXa. Remember that until early June all of their time was spent on Bevyexxa to the detriment of AndexXa and even afterwards there attention was divided. Only with the pivot to focusing only on AndexXa in the September to October time frame were they totally committed to AndexXa. Upon the approval of Gen 2 Portola will expand the sales force to 130 reps; the new reps will probably be on line in February 2019.
  11. AndexXa will be called Ondexxya in Europe. The Ondexxya dossier is under active review and the CHMP is on schedule to provide an opinion on whether it should be approved. The original time for a decision was December of 2018, but this was recently extended to February 2019 as CHMP asked for more information from the existing data base. If CHMP approval is gained, it would be followed by EMA counsel approval perhaps two months later in April or May of 2019. The approval would be based on using the Gen 2 process. Management is fairly confident that AndexXa will be approved with the usual caveats. Management is still evaluating whether it should undertake all marketing in Europe or use partners to market in all of Europe or just certain countries. Gaining reimbursement in most European countries can be a nightmare. Consequently, expectations for 2019 and even 2020 should be low, but in the long term the prospects in Europe could be quite bright.
  12. Based on estimates provided by Portola and supported from other sources. The ultimate addressable market in the US ultimately could be 187,000 patients with expansion of the current label. At a price of about $28,000 per patient, this represent as addressable market of $5 billion. Management estimates that in the US the number of those most urgently in need and that can be immediately targeted sis about 27,000 which translates into about $750 million of sales. The European market has about the same potential.
  13. Let me end this list with a major caveat. AndexXa has not been used on that many patients. The approval of Andexxa was based on reversing the anticoagulant activity of the Factor Xa inhibitors Xarelto (rivaroxaban) and Eliquis (apixaban) in 185 healthyvolunteers. The FDA also considered interim results from the ongoing phase 3b/4 ANNEXA-4 which is a single-arm, open-label study in patients with major bleeds. There is no approved standard of care for this condition and little meaningful data on current treatments used to treat severe bleeds caused by Factor Xa inhibitors. Because of this, the FDA felt it would be unethical to assign patients to a control group. Because of this limited clinical data base, there is the potential for a negative surprise as we gain more clinical experience. I am not saying that this will happen but just that it could

So that is a list of most of the key issues and bringing them together to forecast sales is extremely difficult. Yogi Berra summarized this dilemma when he said that projections are very hard, especially about the future. Here goes.

In looking at the fourth quarter which is essentially over, I am estimating that sales in each month of the quarter could be as good as the $4 to $5 million I estimated for September. A very important assumption is that there was no stockpiling in September and the $4 to $5 million represented actual usage. Maintaining this sales rate in each month of 4Q, 2018 would produce sales of $12 to $15 million. However, the issues discussed above lead me to guesstimate that sequential sales might increase. If monthly sales were say $6 million, there could be sales of perhaps $18 million in 4Q, 2018. This would amount to annualized sales of $72 million. The greatest risk to this estimate is that stockpiling was more important in September than I am allowing for so that the sales run rate based on actual use was less than $4 to $5 million.

In 2019, with the availability of Gen 2 and more sales reps and total focus of the reps on AndexXa, we should see very significant growth. If the annualized sales rate based on 4Q, 2018 sales is $72 million as was just discussed, we might see 2019 sales of perhaps $100 million (3,600 patients) of sales in the US. I would expect minimal sales in Europe if Ondexxya is approved.

Price Target Thinking

As is always the case with biotech stocks, it is hard to put a price target on Portola. One often used benchmark is that the stock market will assign a price to sales ratio of around 10 for a product that is in a strong growth phase as AndexXa as is likely to be the case for the next few years. It seems possible that AndexXa could be a $500 million to $1 billion product in both the US and Europe in this time frame. This would translate into a market capitalization of $10 to $20 billion.

As a result of the change in focus to prioritize Andexxa, Portola says that it now has sufficient cash to fund operations into the first half of 2020. Obviously, they won’t run their cash balance to zero so we should look for an equity offering in 2019. I would not be surprised to see an offering in March 2019 (markets permitting) if Gen 2 is approved in the US and Ondexxya is approved in Europe as they expect.

Portola currently has 56 million shares outstanding. If we were to assume that they sell 15 million shares at $16 to raise $300 million, this would raise the share count to 71 million. Dividing a market capitalization of $10 to $20 billion by 71 million shares results in share price of $140 to $280. Take these numbers with a considerable grain of salt, but I think this conveys the idea that there is considerable upside if AndexXa performs as I hope.

How the New CEO Sees Portola

Earlier this year, Portola was in an unusual position for a small company in trying to launch two major drugs at the same time- Bevyexxa and AndexXa. Bevyexxa has been extremely disappointing and Portola has pivoted to having an almost total focus on AndexXa. This has led to a change of management and the new CEO of Portola was asked at a recent broker conference why he took the job. He responded that in doing his due diligence on the company he spoke with a number of key opinion leaders who believed that AndexXa met a major unmet medical need and represented a major therapeutic advance because current treatment options are suboptimal. He sees AndexXa as a major commercial opportunity.

He believes that Bevyexxa is best in class as an oral Factor Xa inhibitor. However, the commercialization challenges were far greater than originally anticipated and he agreed with the decision made prior to his arrival by the interim management of the company to cut back sharply on marketing of Bevyexxa. The judgment was made to focus marketing on a small number of centers of excellence to see if they can crack the code on how to effectively commercialize Bevyexxa. He also has a deep background in oncology and feels that cerdulatinib is an active and interesting drug. However, it remains early in its development and Portola is not devoting much of its R&D spend to the product.

3Q, 2018 Conference Call Highlights

First Quarter Financial Results

Total revenue for the third quarter was $14.2 million which included $7.7 million in product revenue for Andexxa and $7.0 million in collaboration license revenue. Portola recognized a net product loss for Bevyxxa during the quarter of $552,000 primarily related to potential returns of initial launch quantities provided to wholesalers.

Were 3Q, 2018 AndexXa Sales Due to Stockpiling?

Investors currently are posing lots of difficult questions to answer on the AndexXa launch. Some have tried to estimate utilization rates per hospital for AndexXa, but the drug has only been on the market since June and is supply constrained. There are also questions about whether initial sales are due to stocking, which is a more approachable topic. This is an expensive drug that costs about $28,000 per dose and Portola has a distribution system that can drop ship new orders. This strongly suggests that this is not a new drug that hospitals will put in inventory with the thought that down the road, they will find an opportunity to use it. It seems pretty clear that initial sales are to hospitals that intend to use the drug and were not due to stocking.

Number of Accounts Being Addressed

Portola has been managing Gen 1 supply in order to make AndexXa available to as many hospitals and patients as possible. When they launched the product with the limited Gen 1 supply issues, they were targeting approximately 40 accounts which had familiarity with the drug and were most likely to use it. They wanted to make sure that they could deliver AndexXa when ordered. In the initial months they were able to see how long it took for a hospital to get up and running and who were the fast and slow adopters. By understanding how this worked in the first few months they were able to maximize the use of Gen 1 supply and open up additional accounts. Hence by the November 7 conference call they had over 100 accounts up from the 38 to 40 initially targeted. The bulk of sales to those 100 accounts came in that September time frame so that many accounts were just coming into the process.

How Is AndexXa Being Used?

The label is for life threatening and uncontrolled bleeding. They don’t have tremendous visibility into hospital protocols to determine precisely how the drug is being used. They can speak to some protocols that have recently been published as well as anecdotal information. This suggests that AndexXa is being used primarily in the intracranial hemorrhage (ICH) patients, the most serious type of bleeding. This is consistent with past experience with new drugs which shows that physicians initially try the drug out in the most high risk patients. Once they get experience they begin to broaden beyond that. It makes most sense to use this early on in that space and will then be used more broadly in accordance with the label.

The Effect of the NTAP

The CMS new technology add-on payment (NTAP) which went into effect on October 1 will be beneficial for hospitals, as it provides direct reimbursement from CMS that can cover up to 50% of the cost of the drug or $14,000. The NTAP is a two year deal with the possibility of extending it to a third year. Portola’s commercial operation needs to make sure that hospitals understand that the NTAP is available and how to use it.

What is the Probability for Gen 2 Approval on December 31?

 Management has considerable confidence that Gen 2 will be approved on the December 31, 2018 PDUFA date. They have been through four PTSAs before with betrixaban and all four were approved so they believe that they have a sense of the process. Thus far, the process has gone in a very predictable way as the rhythm and tone is similar to that seen with the four successful PTSAs.

While management is optimistic, they acknowledge that there are potential delays that can occur. They were granted a four month review cycle with a PDUFA date of December 31 from August 31 filing. It is possible that the FDA may ask for additional information that could rise to the level of a major amendment. This would allow the agency to extend the clock by up to two months. However, based on everything that they see and are aware of they don’t see this as a probable scenario at the moment.

There is always an outside chance that FDA could reject the PTSA, but they went through a great deal of work with the FDA and internally with consultants to put together what the company has termed as a beautiful data set that strongly supports the compatibility of Gen 1 and Gen 2. A company can never know if it a data package is bulletproof but they feels this is pretty darn close as it is an extraordinarily strong data package.

Despite all of this optimism they have plans in place so that in case of an unanticipated setback, they won’t run out of stock on Gen 1. They still have production under way and if there is a delay, they have a plan to deal with that delay.

Rolling Out Gen 2 Product If Approved

They have successfully manufactured enough Gen 2 supply to meet anticipated demand for the next couple of years.  Investors are asking how quickly they can roll out Gen 2 on a full commercial basis. They can quickly get the message out right out of the gate that there is now unlimited supply. Right now they have 78 sales reps, but they just pivoted over from Bevyexxa in the 3Q. They plan on increasing the size of the sales force to roughly 130, but these new reps won’t be brought on until they have approval for Gen 2. They have contingent offers outstanding, but it will take a couple of months to bring them fully on and to train them.

Many More Hospitals Can Be Addressed if Gen 2 is Approved

Management believes that there are about are about 600 U.S. hospitals that are Level I or Level II trauma centers or have Comprehensive Stroke designation. These are the biggest institutions across the country and the highest priority. The next tier is about 900 additional hospitals with the Advanced Stroke Center designation. These 1500 should prove to be the important accounts.

Management believes that the new site activation rate will be roughly consistent with what we've seen across the first 6 months of their early supply program. If so, this might point to about 300 hospitals up and running by the end of 2019 with steady progression beyond that.

Expanding the Data Base, Drug Awareness and Life Cycle Management

Life cycle management of AndexXa by broadening its indications is a key strategy of the company. Very high on their list is gaining approval in managing post-operative bleeding patients who have been on a Factor Xa inhibitors. Surgeons doing urgent emergent surgery have made it loud and clear that they need AndexXa. As soon as they get Gen 2 approval, they will sit down with the FDA and they hope to get a trial underway by November of 2019. It is important to identify the right dosing regimen that will work in the surgical setting to ensure that there is adequate hemostasis during and following the operation.

They have also finalized the protocol for the randomized clinical trial the FDA request, which compares AndexXa to the standard of care. They are on track to initiate the study and to dose the first patient in Q1 of 2019. Beyond that they want to add enoxaparin and Savaysa (edoxaban) to the label. They have substantial data in both health volunteers and bleeding patients. They want to share with the agency. They are also developing a registry that will deliver important real world data, once the broader Gen 2 supply is approved. They plan to launch the registry in Q1 2019.

They expect to present the full ANNEXA-4 results in a major medical meeting sometime in the first quarter of next year. They are also hoping for a simultaneous peer reviewed publication in a prestigious medical journal.

Approval of Ondexxya in Europe

In the US, the FDA is simply reviewing whether Gen 2 is comparable to Gen 1. In Europe the CHMP and EMA are reviewing Gen 2 as the basis for initial approval. In February 2018, the agencies required that they include Gen 2 into the review package dossier so that they could go straight to approval. Portola has been working steadily with CHMP and has been right on time to submit major set of documents in December. The dossier is under active review and the Portola thought that the agency provide its opinion in December 2018. However, the agency requested more data and this pushed the date to February 2019. If that is successful they would follow-up with the EMA counsel approving it about two months later in April or May of 2018.

Marketing Ondexxya in Europe

The plan is to move forward with an initial launch in a handful of countries, where pricing and market access are more predictable, and where Factor Xa use is the highest. As in the U.S., they will initially target high volume stroke and trauma centers. In parallel, they will be evaluating partnership opportunities in Europe and elsewhere. They will provide further updates on a launch strategy upon EMA approval that is anticipated in early 2019.

They are moving down parallel paths that allow then the option of setting up their own infrastructure or partnering in all or parts of Europe. One option is to create their own internal infrastructure and be able to launch sometime in 2019. There are handful of countries that they would take on as their own. However, they know that Europe is challenging in both reimbursement and marketing and they are evaluating the potential to partner. Any partnering decision would be made post approval.

AndexXa Addressable Market

The market opportunity for Andexxa is significant. Portola estimates that more than 4 million people in the United States are currently taking a Factor Xa inhibitor and they expect that number to continue to grow at strong double-digit rates. Of these patients, the Company estimates that approximately 3% will be admitted to the hospital with a Factor Xa inhibitor related bleed. In 2017, that equated to approximately 140,000 hospital admissions in the U.S. alone. Based on third-party data, they estimate that up to an additional 47,000 or 1% of these patients may require emergency surgery, further increasing the overall opportunity for Andexxa over time. Based on 187,000 patients and a price of $28,000 per dose this represents an addressable market of $5 billion in the US. Generally, the European addressable market is comparable in size to the US so that this would increase the addressable market by an additional $5 billion.

Cerdulatinib Update

They are encouraged by early data that convinces management that cerdulatinib is an active drug in most T-cell and B-cell lymphomas and leukemias. They ultimately would like to test the drug beyond these indications and focus is to see if they can go beyond the T-cell and B-cell lymphomas such as in combination such as with Rituxan in follicular lymphoma. While they are encouraged by the early data, it is a small part of their R&D spend.

They want to see early data mature in order to plan development. They will have an end of phase 2 meeting with the FDA in early 2019 to determine if they can develop an early registration strategy. They will also consider both internal development and partnering.

Based on these data in recent feedback from the FDA, we believe there may be an accelerated approval pathway for cerdulatinib and certain tumor subtypes. We look forward to continuing discussion with the FDA, including our end of Phase 2 meeting targeted for Q1 2019 to determine the regulatory path forward.


Portolas now has a centers of excellence strategy in which they have narrowed their marketing focus to a small targeted group of hospitals that have Bevyxxa on formulary. The goal for 2019 is to establish a blueprint for success for Bevyxxa within these hospital and outpatient settings. Experience within the centers of excellence will help the Company make a strategic decision on how best to maximize the benefit of Bevyxxa. They believe that Bevyexxa is the best in class product among Factor Xa inhibitors.

They are pursuing partnerships that can take any number of forms. They will make a decision probably in 2H, 2019 on how they go forward with Bevyexxa.

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