Portola Pharmaceuticals (PTLA)
Long Thesis:
The market is undervaluing Portola Pharmaceuticals (PTLA) shares
because investors underestimate the impact of andexanet alfa

Price: $47.61 | Target Price: $60.00 (+26% upside)

Market Cap: $2.47 billion | Employees 100

October 30, 2015



  • Important: Market is underestimating the significance of andexanet alfa
  • Andexanet Alfa is nearing commercialization and has no competition in the foreseeable future
  • Betrixaban is potentially a year away and currently has no competition for its indication
  • Cerdulatinib is still years away but should not be completely ignored in Portola’s valuation

About Portola Pharmaceuticals

Portola Pharmaceuticals (PTLA) is a biotech company that is developing therapeutics related to blood conditions. The firm currently has three products in the pipeline: an anticoagulant (betrixaban), an antidote for anticoagulants (andexanet alfa), and a blood cancer treatment (cerdulatinib).

Framework for Valuation

  • View biotech firm as a portfolio of projects and value using 100% DCF analysis
  • Forecast the probability of success for each project
  • Determine the expected net present value of each project by factoring the probability of success
  • Firm is valued at sum of the projects’ expected values subtracted by the present value of overhead
    • Operating expenses only include the R&D and SG&A for the portfolio of projects being valued
    • Framework ignores the potential value of unannounced future projects and the related R&D costs
    • Summarized DCF Model is presented

Portfolio of Products in Pipeline

Andexanet Alfa Betrixaban Cerdulatinib
Product Type Antidote for Xa Inhibitor Xa Inhibitor (Anticoagulant) Cancer Treatment
Compound Large Molecule (Biologic) Small Molecule Small Molecule
Treats (Indication) Bleeding associated with Factor Xa Inhibitor use Venous Thromboembolism (VTE) prophylaxis Chronic lymphocytic leukemia (CLL) & non-Hodgkin lymphoma (NHL)
Stage Phase III: ANNEXA Study Phase III: APEX Study Phase 1/2a Study
Market 100,000+ patients in G7
500,000+ patients by 2020
22 million patients in G7 indicated for anticoagulant to prevent VTE. 100,000 new diagnoses of leukemia and lymphoma in US annually
Timeline End-2015: BLA Filing
Mid-2016: FDA Approval
Early-2016: Phase III Data
2016: NDA filing
2017: FDA Approval
FDA Designations "Breakthrough Therapy"
"Orphan Drug"
"Fast Track"

Andexanet Alfa

Andexanet alfa is an antidote for anticoagulants. Anticoagulants reduce the clotting effect of blood. Legacy anticoagulants were compounds called heparin and warfarin. These anticoagulants can be difficult to control, resulting in too much or too little anticoagulant effect, but they had antidotes for reversing the effect. These legacy products are being replaced by Factor Xa inhibitors that significantly improve safety and efficacy. Annually, millions of patients use Factor Xa inhibitors and the number is expected to grow substantially. However, Factor Xa inhibitors do not currently have a reversal agent. 1-4% of patients treated with a Xa inhibitor suffer major bleeding and an additional 1% may require a reversal agent because they require emergency surgery.

Lawyers have been spending millions of dollars to solicit clients for lawsuits against Bayer HealthCare and Janssen Pharmaceutica (owned by Johnson & Johnson) for Xarelto®. Boehringer Ingelheim has already agreed to pay $650 million to settle 4,000 lawsuits regarding Pradaxa®.

Andexanet alfa, if approved, would be the first universal antidote for Factor Xa inhibitors. Portola worked in collaboration with Factor Xa inhibitor manufacturers Bristol Myers Squibb and Pfizer (apixaban/Eliquis®), Bayer& Janssen (rivaroxaban/Xarelto®), and Daiichi Sankyo (edoxaban/Savaysa®). Portola retains 100% of worldwide commercialization rights.

I interviewed a pathologist who performs blood banking and transfusions. He reported that bleeding from FXa inhibitor use is a very significant problem and andexanet alfa would amount to a blockbuster drug by addressing this.


Betrixaban is an oral, once-daily Factor Xa inhibitor targeting Venous Thromboembolism (VTE) prophylaxis. VTE are blood clots in acute medically ill patients who are hospitalized for heart failure, stroke, infection, rheumatic disorders, or pulmonary disease. There are 22 million of such patients each year in the G7 countries. The current therapy is hospital-based enoxaparin (Lovenox®) injection to prevent VTE. However, one million patients still suffer VTE and over 150,000 die every year. Data shows that 50% of life-threatening blood clots occur after hospital discharge and the standard 10 days of therapy from enoxaparin. If approved, betrixaban would be the first approved therapy for VTE beyond this period. Existing Factor Xa inhibitors have failed to gain approval for treating the acute medically ill.

The pathologist I interviewed reported that betrixaban bridges inpatient to outpatient, a critical differentiator in a large and fast growing market.


Cerdulatinib is a treatment for blood cancer. More specifically, it is an oral kinase inhibitor that targets the Syk and JAK tumor survival pathways to treat chronic lymphocytic leukemia and non-Hodgkin lymphoma. Inhibition of Syk has been shown to directly impact a tumor’s internal survival signaling pathway. Inhibition of JAK can block supportive survival signals a tumor receives from its micro-environment. Portola believes Cerdulatinib may result in greater clinical benefit in patients with hematologic cancers than that seen with single pathway agents.

Probability of Success (POS)

Probabilities of success are calculated based on empirical findings published in Clinical Pharmacology & Therapeutics. These probabilities are used as average benchmarks for the following analysis.

Empirical POS Small Molecule Large Molecule
Phase I to Approval 13% 32%
Phase II to Approval 21% 38%
Phase III to Approval 56% 71%
Submission to Approval 91% 96%

Andexanet alfa Probability of Success 92%

Andexanet alfa has completed its Phase III ANNEXA Part 1 studies. The ANNEXA-A and ANNEXA-R Part 1 studies demonstrated that andexanet alfa administered in a single intravenous (IV) bolus with apixaban and rivaroxaban achieved >90% reduction in anti-Factor Xa activity and was well tolerated, with no serious or severe adverse events, no thrombotic events, and no observed antibodies to Factor X or Xa. The studies met all primary and secondary endpoints with high statistical significance (p<0.0001).

The company is proceeding with Part 2 studies that evaluate a bolus plus continuous infusion of andexanet alfa. Portola is also currently conducting a Phase 4 confirmatory study with patients receiving apixaban, rivaroxaban, edoxaban, or enoxaparin and suffer acute major bleed. The studies are on track for submitting a Biologic Application (BLA) under Accelerated Approval by end of 2015.

Key Takeaway
Due to the favorable results of the Phase III studies so far and the accelerated approval process of orphan drugs, the probability of success is assessed at 92% for andexanet alfa because favorable data has been attained and the biologic is near the submission phase.

Betrixaban Probability of Success 70%

Betrixaban is enrolling for its Phase III APEX trial, which is scheduled to publish data in early 2016. The enrollment has been increased to 7,500 patients from 6,850 and the study has been structured to use biomarkers to focus initially on D-Dimer positive patients. D-Dimers are protein fragments in the blood that indicate a risk for thrombosis. The increase sample size and structure of the trial are the result of knowledge gained from failed trials involving other Factor Xa inhibitors in the past. Designing the trial around D-Dimer positive patients who are at high risk of blood clots increases the likelihood of favorable results.

Although Factor Xa inhibitor products on the market today (such as rivaroxaban) fail for the acute medically ill patients targeted by betrixaban,the results of the APEX studies are expected to reflect the positive results of the earlier studies due to betrixaban’s pharmacokinetic profile. Phase III studies often take 2.5 years to conduct, but PTLA was granted “Fast Track” designation by the FDA on October 13, 2015 and is on track for a 2016 filing of a New Drug Application (NDA).

Key Takeaway
The larger trial and biomarker-based design of the Phase III study should generate better results for FDA approval. As a result, the probability of success is assessed at 70% compared to the 56% average for small molecule Phase III trials.

Cerdulatinib Probability of Success 18%

Cerdulatinib is currently in a Phase 1/2a trial involving chronic lymphocytic leukemia (CLL) and B-cell non-Hodgkin lymphoma (NHL) patients. In vitro studies suggest that cerdulatinib’s method of action, inhibiting the Syk and JAK signaling pathways, may be a potent treatment for hematologic malignancies (blood cancers) in which other treatments (such as ibrutinib) failed or relapse occurs due to mutations.

Key Takeaway
Probability of success for cerdulatinib is assessed at 18%, below the 21% average for small molecule Phase II trials. Drugs at this stage typically have another 6 years before approval. Sell-side analysts typically do not include cerdulatinib in their DCF valuations.

Expected Value

Andexanet alfa Expected Value $3.5 billion

Number of potential patients
Millions of patients use Factor Xa inhibitors today and this number is expected to grow rapidly as such FXa inhibitors replace legacy anticoagulants. Studies indicate 1-4% of FXa inhibitor users suffer significant bleeding. Portola forecasts that by 2020, there will be over 500,000 patients annually using andexanet alfa in the US, Japan, and five largest EU countries. This estimate is conservative: at 25 million users and assuming a 2% vulnerability, 500,000 patients annually will require the antidote.

None on the market today for apixaban and rivaroxaban. Perosphere, Inc has a Phase II trial underway. On October 16, the FDA granted accelerated approval for Boehringer’s idarucizumab (Praxbind®), which reverses the effect of dabigatran (Pradaxa®), a direct thrombin inhibitor. Praxbind poses minimal competition because Pradaxa use has fallen off already.

Analysis assumes Andexanet alfa will be used by 30% of the 100,000 patients with the indication in 2016 and grow to 60% of the 500,000 patients in 2020. Growth in patients is assumed to grow 10% per annum thereafter. This growth in patients assumes continued strong adoption of Factor Xa inhibitors.

Expected Value
Assuming $3,000 revenue per patient under patent (comparable to the Kcentra antidote), $200 revenue per patient off-patent in 2029, 70% profit margin, 92% POS adjustment, and 15% WACC, the present value of Andexanet alfa gross profit through 2030 with no terminal value is $3.5 billion.

Betrixaban Expected Value $1.5 billion

Number of potential patients
There are 22 million acute medically ill patients at high risk of VTE each year in the G7 countries. With existing therapy, one million patients still suffer VTE and over 150,000 die every year. Data shows that 50% of life-threatening blood clots occur after hospital discharge. Betrixaban would be the first approved hospital-to-home therapy to prevent VTE among the acute medically ill.

Bayer and Janssen are still working on approval for rivaroxaban (Xarelto®) to treat the same indication and would present direction competition if they are successful. Xarelto already grosses over $1 billion per year for the indications it currently treats. There are numerous other anticoagulants are on the market today but none have been shown to treat the acute medically ill. These include other Factor Xa inhibitors such as apixaban (Eliquis®) by Bristol Myers Squibb and Pfizer and edoxaban (Savaysa®) by Daiichi Sankyo, DT inhibitors such as dabigatran (Pradaxa®) by Boehringer Ingelheim, and heparin products such as Enoxaparin (Lovenox®).

Analysis assumes betrixaban can capture 3% of the 23.6 million patients in 2017, 6% of the 24.8 million patients in 2018, and grow to 8% of 27.3 million patients in 2020. Thereafter, patient universe is assumed to grow at 2% per annum while betrixaban maintains 8% market share.

Expected Value
Assuming betrixaban sells at $10 per pill under patent (less than Xarelto) and $2 per pill off-patent in 2026 (comparable to Warfarin today), patients require 35 pills, gross margins are 50% in 2017 and rise to 70% in 2019, and 15% WACC, the present value of gross profits is $1.5 billion.

Cerdulatinib Expected Value $779 million

Number of potential patients
There are over 100,000 new diagnoses of leukemia and lymphoma in the United States each year and nearly one million globally each year.

Current treatments include rituximab and obinutuzumab by Genetech, Chugai Pharmaceuticals, and F. Hoffmann-LaRoche; ibrutinib by Janssen and Pharmacyclics; and idelalisib by Gilead to treat CLL and NHL.

Analysis assumes cerdulatinib will address 2.5% of global patients in 2021 and rise to 10% in 2024.

Expected Value
Assuming cerdulatinib generates $12,000 revenue per patient per month in 2021 (compare to $10,000 revenue per patient per month for ibrutinib today), average two months of use, gross margins are 50% in 2021 and rise to 70% in 2023, and 15% WACC, the present value of gross profits is $779 million.

Total Equity Value $3.5 billion ($60.02 per share)

Reducing forecasted POS-adjusted gross profit of the three projects by R&D, SG&A, and tax expenses (35% assumption) results in operating cashflow with a present value of $3.5 billion. Assuming a near 100% equity capital structure of 52.56 million shares results in a valuation of $60.02 per share.

This valuation excludes any “collaboration and license revenue” that Portola receives from its partners. Since these payments are irregular, they were excluded from the valuation, resulting in a downward biased equity valuation. This bias is counterbalanced by treatment of tax provisions for 2019.


PTLA is currently trading at over a 20% discount to the DCF valuation because the market is likely underestimating the significance of andexanet alfa. The indication that andexanet alfa treats is not a widely known problem, but it is a very large problem. Factor Xa inhibitors are growing in use to tens of millions of patients per year. With even 2% of patients requiring an antidote translates to significant value for PTLA shareholders. Betrixaban will potentially gross $1 billion per year for its currently targeted indication and sales can grow further if it is approved for other indications. Even with an 18% POS for cerdulatinib, it adds significant value that should not be ignored.

Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Andexanet alfa
Andexanet patients 45.0k 121.5k 164.0k 221.4k 298.9k 328.8k 361.7k 397.9k 437.7k 481.4k 529.6k 582.5k 640.8k 704.9k 775.4k
Revenue/patient $3000 $3090 $3183 $3278 $3377 $3478 $3582 $3690 $3800 $3914 $4032 $4153 $4277 $200 $206
Andexanet revenue $135M $375M $522M $726M $1009M $1143M $1296M $1468M $1663M $1885M $2135M $2419M $2741M $141M $160M
POS-adjusted revenue $124M $345M $480M $668M $929M $1052M $1192M $1351M $1530M $1734M $1964M $2226M $2522M $130M $147M
Betrixaban patients 709k 1488k 1563k 2188k 2232k 2276k 2321k 2368k 2415k 2464k 2513k 2563k 2614k 2667k
Price per day $10.00 $10.30 $10.61 $10.93 $11.26 $11.59 $11.94 $12.30 $12.67 $2.00 $2.06 $2.12 $2.19 $2.25
Days per patient 35 35 35 35 35 35 35 35 35 35 35 35 35 35
Betrixaban revenue $248M $537M $580M $837M $879M $950M $1026M $1107M $1193M $197M $212M $228M $246M $264M
POS-adjusted revenue $174M $376M $406M $585M $615M $664M $718M $775M $835M $138M $149M $160M $172M $185M
Cerdulatinib patients 27.6k 56.3k 86.2k 117k 120k 122k 124k 127k 129k 132k
Revenue per patient $24.0k $24.7k $25.5k $26.2k $27.0k $27.8k $28.7k $29.5k $30.4k $31.3k
Cerdulatinib revenue $662M $1392M $2194M $3073M $3228M $3392M $3563M $3743M $3933M $4132M
POS-adjusted revenue $119M $251M $395M $553M $581M $610M $641M $674M $708M $744M
Total Revenue $124M $519M $856M $1074M $1514M $1787M $2108M $2463M $2858M $3150M $2713M $3016M $3355M $1010M $1076M
COGS $62M $190M $257M $322M $454M $560M $632M $739M $857M $945M $814M $905M $1007M $303M $323M
Gross Profit $62M $329M $559M $752M $1060M $1227M $1475M $1724M $2001M $2205M $1899M $2111M $2349M $707M $753M
Operating Expenses
R&D $200M $150M $75M $75M $75M $35M
SG&A $100M $120M $120M $120M $120M $140M $140M $140M $140M $140M $140M $140M $140M $140M $140M
EBITDA $238M $59M $404M $557M $865M $1052M $1335M $1584M $1861M $2065M $1759M $1971M $2209M $567M $613M
Taxes $303M $368M $467M $555M $651M $723M $616M $690M $773M $198M $215M
Net Income $238M $59M $404M $557M $562M $684M $868M $1030M $1209M $1342M $1143M $1281M $1436M $368M $398M