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Expert Financial Analysis and Reporting

Portola: Uncertainty on AndexXa Approval Leads to 30% Decline in Stock Price (PTLA, Buy, $31.16)

Major New Uncertainty for AndexXa

The fourth quarter conference call produced alarming information about the FDA review of AndexXa. This drug is an antidote for excessive bleeding that sometimes results from use of the Factor Xa anticoagulants Eliquis and Xarelto. Portola states that in the U.S. in 2017, there were approximately 150,000 hospital admissions that were attributable to Factor Xa inhibitor induced excessive bleeding and more than 24,000 related deaths. According to CDC estimates, this places it among the top 15 causes of death in the United States. AndexXa could be the first drug approved to address this condition. The FDA has assigned breakthrough status to the drug, designated it for accelerated approval and set a PDUFA date of May 4, 2018. The expectation of management and most analysts has been that AndexXa would be approved in the US at the May PDUFA date and introduced into the market soon thereafter.

Management revealed during the call that they had received a communication from the FDA on February 23. The regulatory program for AndexXa is based on comparing AndexXa results to a usual care cohort as opposed to a randomized trial. The FDA never officially agrees to any regulatory pathway, but the company and agency have discussed regulatory approval approach for several years and the according to Portola, there was never any indication that the FDA would require a randomized trial for approval. Unexpectedly, the FDA now indicates that they “may” want data on some patients in a randomized study. If this is a condition for approval, the approval date for AndexXa in the US could be set back three years or so.

This information from the FDA just came last week and management has not been able get any clarification on what the FDA is seeking. The communication from the agency was unclear and there will need to be further interaction. In the communication, the FDA indicated that AndexXa is still on track for accelerated approval. To say that the message from the FDA is mixed and unclear is an understatement. Portola is anxiously awaiting further discussions and clarifications from the FDA. In the meantime, the Company continues to make commercial launch preparations.

AndexXa Manufacturing Update

The initial U.S. commercial supply of AndexXa will be sourced from with the Generation 1 manufacturing process. This will produce only limited supply for the second half of 2018 so that Portola will focus on a limited number of hospitals and for patients most in need. The Generation 2 commercial process will be capable of satisfying demand; the goal is to get this GEN 2 product to the market within six months of FDA approval so that AndexXa would be widely available by the end of 2018 if approved.

Potentially Important New Data on AndexXa

There will be a late breaking presentation on the ANNEXA-4 study at the American College of Cardiology meeting on March 12 at 11:30 AM. This is an important interim analysis that will be presented by the study chairman, Dr. Stuart Connolly of McMaster University. Management indicates that the data is encouraging, but obviously can’t be specific prior to the presentation. Portola will host a webcast to review results at 12:30 PM.

Bevyexxa Launch

Bevyxxa is the first and only anticoagulant approved as a single drug regimen from hospital admission to home for up to 35 to 42 days. Clinical trials indicated effectiveness in preventing venous thromboembolism and VTE-related deaths and hospitalization in acute medically ill patients. It has a unique and differentiated niche in the huge oral anti-coagulant market.

The US launch just began in January and the company is working to get reimbursement and hospital formulary approval. The Company has not yet released metrics on how successful they are in this regard. This may be forthcoming by mid-year. Based on the experience with the launches of other hospital based products, Bevyexxa sales are likely to be modest in 2018.

Financial Situation

Portola ended the year with $534 million of cash. They indicated that GAAP operating expenses for 2018 could be in the range of $390 to $430 million; cash expense would be somewhat less. With the approval of AndexXa on May 4, they would receive a $100 million milestone payment.

What to Do With the Stock

The worst case seems to be that a randomized clinical trial would be required for AndexXa approval in the US. If so, the timing of US introduction of AndexXa could be delayed three years or more. European approval seems on track for 4Q, 2018. Management states that the CHMP has indicated that approval in Europe will not require a randomized trial and the CHMP disclosed last week that AndexXa was on a positive trend toward approval in Europe in 4Q, 2018. The US delay would be a severe setback and the 30% decline in the stock price seems to indicate that this is now the expectation for AndexXa.

I think that even in this worst case that there is great value in the Company. With Bevyexxa they have an approved product with a significant differentiation from Eliquis and Xarelto and the ability to expand indications in the huge and fast growing Factor Xa anti-coagulant market. They also appear to be on target for approval for AndexXa in Europe in 2019. These two assets would be very compelling to most large pharma companies so that this worst case scenario could push Portola management to sell the Company. I think this would be at a substantial premium to the current stock price. I think that even in the worst case scenario, the stock is a Buy at this level.

Approval at the May 4 PDUFA date has not been ruled out so that there is a beat case scenario in which it is approved then as was the expectation prior to the 4Q call. Remember that AndexXa addresses a huge unmet medical need as I outlined earlier and that the FDA has designated it as a breakthrough therapy. Also, asking for a randomized trial when this has not been indicated as a requirement in all previous communications between the agency and Portola would be a breach of faith on the part of the FDA. This would be like moving the goal post for approval just as the kick is attempted to use a football analogy.

One thing I would call to your attention is that in the past, the FDA has been frustrated in that they have sometimes approved products with a commitment from a Company do post-marketing studies to determine what the real life outcome is with the drug. The industry has not been compliant on this so that the agency is beginning to make post marketing studies a requirement for approval. This could be the case here. Doing a randomized trial after approval would not be possible, but the FDA could be using this as a lever to get post marketing information. It is hard for me to believe that in light of the encouraging data that has earned AndexXa breakthrough status and given that it uniquely addresses a life or death medical indication, there is more than a reasonable chance  that AndexXa be approved on the May 4, 2018 PDUFA date.




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