Expert Financial Analysis and Reporting

Investment Thesis

There was considerable uncertainty as to whether the FDA would approve betrixaban so that the approval caused a sharp jump in the stock price. The question I am asked is whether the stock will back off from current levels allowing investors to acquire the stock at a better price or even if existing investors should take profits. I have no idea where the stock might go in the short term, but with the approval of betrixaban and the probable approval of AndexXa in early 2018, I think that this is going to be a monster stock over the next decade. You couldn’t pry it out of my portfolio with a crowbar. I would urge you to read my initiation report of May 4, 2017 to understand my reasoning for a 2021 price target of $426 based on the  sales projections shown in the next table.

The approval of a major new product is always a watershed event for a biotechnology company and especially if it is the first commercial product. So the June 23, 2017 approval of betrixaban has enormous investment implications. The prospective investor base will change over time from a small base of sophisticated biotechnology specialists speculating that a drug might be approved to a much broader investor base. These are large institutions who control much larger amounts of money and are long term investors. They seldom invest in the development stage, but are major investors in the commercial stage. I have seen this scenario before and it almost always plays out well.

The Focus Now Turns to the Launch of Betrixaban

In regard to betrixaban, the focus obviously shifts from the potential for approval to the launch of the product. Biotechnology investors have come to expect that all launches will be slow and even though there is this expectation, nevertheless a slow launch seems to always negatively impact a stock. Betrixaban will be launched sometime in the August to September time frame. Will this launch also be slow and disappointing to some investors? It shouldn’t but I can’t dismiss the possibility.

Portola has done extensive clinical studies of betrixaban to raise awareness and understanding of the drug and it is much anticipated by its physician target market. It meets a critical unmet medical need to prevent blood clots from forming in acute medically ill patients. For example, a patient might be hospitalized for a heart attack and for several days is relatively immobilized. Blood clots may begin to form in the hospital, but the patient also remains at high risk in the month or so after discharge. In the hospital, the patient may be treated with the injectable product enoxaparin, but it is not practical to continue the drug once the patient is discharged. The important and sometimes life saving role that betrixaban plays is that it is an oral drug that can be started in the hospital and continued for 35 days or so after discharge from the hospital.

It is estimated that there are 8 million hospital admissions of acute medically ill patients each year in the US and 24 million worldwide. While not all of these patients need treatment, many will. On a worldwide basis, Portola believes that 100,000 acute medically ill patients die each year from blood clots. Portola believes that the worldwide addressable market could be $3 to $ 4 billion.

Portola has decided to increase the number of sales reps at launch from 40 to 70. There is a uniqueness to the launch in terms of reimbursement. Initial reimbursement comes from the hospital and the cost of betrixaban is paid out of the DRG. Of course, the DRG payment is the same regardless of whether betrixaban is used or not. Once the patient is discharged, the payor changes to private insurers, Medicare or Medicaid. There is a powerful incentive for the hospital to use betrixaban if the hospital believes that betrixaban is effective. If a patient is discharged but develops a blood clot and has to be hospitalized, the hospital may not be fully reimbursed for the re-hospitalization by Medicare. This can be a huge financial hit to the hospital so there is a powerful incentive to use betrixaban. I think that if the hospital prescribed the product, it is then very difficult for the insurers outside the hospital to deny coverage for a unique drug in a life saving situation. All of this argues for a strong launch, but who knows.

Portola is totally committed to launching the drug on its own in the US. The target hospital market is small enough that it can go after this market with only 70 reps so this is quite doable. Not needing a partner significantly increase the financial return for Portola shareholders. The Company hasn’t decided to go it alone in Europe following expected approval late this year or early next.

Competitive Position of Betrixaban

For the immediate future, betrixaban will be the only drug approved for treatment of acute medically ill patients. Its mechanism of action is Factor Xa imbibition like the blockbuster drugs Xarelto and Eliquis. Both of these drugs have failed in clinical trials in this indication. Xarelto was effective but safety issues prevented approval and Eliquis was safe but not effective. Betrixaban has superior pharmacokinetic profile that allowed it to thread the needle to provide efficacy with acceptable safety. Xarelto is doing another trial in acute medically ill patients with a different dosing strategy and potentially could come to market in two years or so. I suppose that some investors will fret about this completion, but the market is very large and this will not be a zero sums game. Being first to market with what appears to be superior pharmacokinetics should enable betrixaban to be the market leader.

There is More to the Story than Betrixaban; AndexXa Has Major Potential

The unusual and exciting thing about Portola is that the Company has a second major drug following on the heels of betrixaban. The BLA for AndexXa originally was filed on January 4, 2016. The FDA had previously designated it as a breakthrough drug and a priority review was assigned with a PDUFA date of August 19, 2016. Disappointingly, the FDA issued a complete response letter on that PDUFA date. However, the issues did not relate to clinical data but to manufacturing issues stemming from documenting quality in the manufacturing process. Portola has said that it believes that it can answer agency concerns without any new trials and plans to re-submit the BLA in July 2017. This could lead to approval in early 2018. Manufacturing issues can be tricky, but they still are of less concern than problems with clinical data. If Portola is correct, the product should be launched in 1H, 2018.

Addressable Market for AndexXa

The entry of factor Xa inhibitor drugs has led to broad usage as they reduced the monitoring and dosing issues associated with warfarin and the dosing issues with enoxaparin. While they were an important advance in anticoagulation therapy, they presented a major drawback in that there was no antidote to reduce major bleeding episodes that can occur when patients are on the drugs. Hence, many physicians and patients still perceive warfarin as safer because there are reversal strategies for when major bleeding occurs. The need for an antidote for the factor Xa inhibitor drugs is critical. Portola has developed AndexXa (andexamet) as a way to reverse the effects of the factor Xa drugs. AndexXa has a pronounced first mover advantage.

Based on comments from Portola and other sources, I estimate that by 2022 there will be over 2.0 million patients in the US who are on a factor Xa inhibitor drugs and 1.4 million in Europe. There are three potential segments of this population to address:

• Clinical data suggests 1% to 2% will experience a spontaneous major bleed. This equates to 20,000 to 40,000 patients in the US and 14,000 to 28,000 in the EU. KOL sources suggest that 50% of these patients may be given AndexXa five years after launch.
• 3% will require emergency surgery. This equates to 6,000 patients in the US and 4,200 in Europe. KOL sources suggest that 60% of these patients may be given AndexXa five years after launch.
• 1% to 2% will have trauma other than a major bleed or emergency surgery. This equates to 20,000 to 40,000 patients in the US and 14,000 to 28,000 in the EU. KOL sources suggest that 30% of these patients may be given AndexXa five years after launch.

Using these assumptions, I estimate that there will be 19,600 to 35,600 patients treated in the US in 2022 and 14,000 to 25,000 in the EU. Let’s take the mid-point of these ranges and estimate that 28,000 patients will be treated in the US and 19,500 in the EU. I think that AndexXa is likely to be priced at about $20,000 per treatment. If so, the potential sales in the US in 2022 would be $560 million and in ROW about $350 million.