According to an October 24th Zacks report, the healthcare sector and most notably biotechnology have been in the "limelight" in 2013. Biotech as a sector has shown high growth and high beta outperforming the broader markets. The report states biotechnology funds have posted an impressive performance throughout the first half of the year and momentum is expected to drive the segment for the rest of the year. With healthcare spending continuing to increase and the demand for new drugs accelerating, the biotechnology sector should see solid growth over the next few years.
Interestingly, since 2010 the biotech sector and in particular the NASDAQ Biotech Index has solidly outperformed other investment sectors by over 100%. Many of the IPOs over the last few years have delivered more than impressive gains: Clovis Oncology (CLVS) is up 330%, Pacira Pharmaceuticals (PCRX) has grown 600%, Aegerion Pharmaceuticals (AEGR) has risen over 700%. This year there have been over 30 new biotech offerings. Portola Pharmaceuticals Inc. (PTLA) has been one of those offerings and the stock has more than doubled since its IPO. If Portola's pipeline continues to show positive results its stock should continue on its upward trend.
Portola's Collaborations Build Future Milestone Payments
San Francisco-based Portola Pharmaceuticals raised $126 million when it went public in May with an IPO price of $14.50 per share. Since then the stock has experienced solid growth rising over 57%. The stock hit its all-time high of $30.95 early in October, but worked its way down due to profit taking and the anticipation of a secondary offering that happened on October 16th. The secondary offering was for 6.4 million shares priced at $23.75 per share. The sale consisted of Portola selling 4.5 million shares while 1.9 million shares were sold by stockholders. The proceeds added an additional $105.9 million in cash for the company before deductions and expenses; in addition Portola did not receive any proceeds from the sale of shares by the selling stockholders. The company plans to use the proceeds raised to further research and develop its pipeline of drugs, including its ongoing phase III Betrixaban study, pursuing an accelerated approval process of its drug Andexanet alfa (PRT-4445), and for PRT2070, which recently began enrollment for its phase ½ clinical study for treatment of hematologic cancers. The funds will also be used for working capital, capital expenditures and general corporate purposes.
Andexanet Alfa Studies Finds Support In Big Pharmaceutical Companies
The newer crop of factor Xa inhibitors, which are blood thinner drugs such as Bayer HealthCare (BAYRY) and Johnson & Johnson's (JNJ) Xarelto, or Bristol-Myers Squibb (BMY) and Pfizer's (PFE) Eliquis, or Boehringer Ingelheim's Pradaxa, come with a risk of serious bleeding. Factor Xa inhibitors are anticoagulants that block the activity of clotting factor Xa and prevent blood clots from developing or getting worse. Due to these novel drugs' long half-lives, these anticoagulants pose an even higher risk if patients are in need of emergency surgery due to the increased dangerous bleeding incidents. Unlike warfarin, the widely used blood thinner, these drugs do not have a quick-and-easy antidote in case of emergency.
That all may change if Portola's novel drug andexanet alfa (PRT-4445), an agent designed to counteract heavy bleeding, gains U.S. Food and Drug Administration (FDA) approval. PRT-4445, which is currently in two phase II studies, is a novel recombinant protein designed to reverse the anticoagulant activity in factor Xa inhibitor-treated patients suffering from an uncontrolled bleeding episode or undergoing emergency surgery. PRT-4445 works by acting as a decoy for factor Xa inhibitors in the blood, thereby preventing them from inhibiting the activity of native factor Xa. Four big pharmaceutical companies that have a lot to gain if the drug is approved have funded two separate phase II studies using PRT-4445 as an antidote for its factor Xa inhibitor drug.
Interim data from the phase II trial funded by Pfizer and Bristol-Myers Squibb's in reversing the effects of their blood-thinning drug, Eliquis, showed that PRT-4445 reversed 92% of the anticoagulant activity two minutes after completion of a 420mg bolus dose, and maintained a 91% reversal following a two-hour infusion. The second phase II study, funded by Bayer HealthCare and Johnson & Johnson, focuses on the safety and effectiveness of PRT-4445 for reversing the effect of their blood-thinning factor Xa inhibitor drug, Xarelto. Both the makers of Eliquis and Xarelto, along with Portola, have a lot riding on the success of PRT-4445. For Portola, if approved the drug has a consensus sales forecast of reaching $162 million in 2018. And for the big drug makers to make an attempt to oust warfarin as the blood thinner of choice, they will need a drug that can act as an antidote to stop serious bleeding episodes.
As PRT-4445 works its way through the drug trials, Portola now focuses its efforts on developing betrixaban-- its novel, oral anticoagulant, once-daily, factor Xa inhibitor the company acquired from Millennium Pharmaceuticals, Inc. in 2003. The drug is designed for extended duration prophylaxis, or preventive treatment, of a form of thrombosis, or blood clots, known as venous thromboembolism, or VTE. Betrixaban was shown to be well tolerated and does not lead to excess bleeding compared with warfarin in patients with atrial fibrillation (A-fib) at risk for stroke. Betrixaban is currently in a phase III study in preventing thrombotic events in high-risk acute medically ill patients immobilized during a hospital stay, an indication in which both Xarelto and Eliquis have failed.
Portola's Collaborations Brings In Solid Revenues
Unlike most early biotech development companies, due to its collaborations and licensing revenue, Portola had been a profitable company for two years before its IPO. In 2012 the company's revenue reached $72 million with $49.7 million in development costs. In 2011 the company had revenue of $78 million. Portola's partnerships with Bristol-Myers Squibb, Pfizer, Biogen Idec, Merck & Co. and Novartis have brought in more than $185 million from 2010 to the end of 2012.
Collaboration revenues in the second quarter of 2013 were $2.6 million, down from $66.9 million in the same quarter 2012, due to its recently terminated collaboration with Novartis. Total operating expenses for the second quarter of 2013 came in at $24.5 million compared with $16.1 million for the same quarter of 2012. The increase in operating expenses was primarily attributable to increased investment in research and development to advance the clinical development of betrixaban, PRT-4445, and PRT2070. Portola reported a net loss of $21.6 million, or $1.47 per share, for the second quarter of 2013 compared with net income of $49.8 million, or $1.67 per share, for the second quarter of 2012. However, as of June 30 the company had cash, cash equivalents and investments of $235.2 million compared with cash, cash equivalents and investments of $137.4 million as of December 31, 2012.
Portola's stock closed on Friday October 25th at $23.47 per share. The company currently has a market cap of $826.5 million, and is 71% institutionally owned. Cowen and Company have an outperform rating on the stock with a price target of $47.00 in a research note to investors on Friday, August 16th. Five other research analysts have rated Portola a buy, with an average price target of $38.50.
Portola is in the hottest sector of the market - biotech. The company has a number of factors in its favor, including a solid revenue stream from collaborations with some of the largest pharmaceutical companies in the world. With its milestone payments and its licensing agreements, and the cash it already has on its balance sheet, the company has plenty of money to last through the drug trials. The stock has given back almost 25% of its gains, but that makes sense due to the pricing of the second offering and profit taking. With the second offering complete, investors can focus on the value that the company's pipeline of drugs offers. And while the company has four drugs in clinical development, it is estimated that the combined net present value of PRT- 4445 and betrixaban are valued at roughly $1.05 billion, which if correct would make Portola's stock undervalued at today's price. I think Portola's stock has an excellent chance of reaching new highs, but as with any biotech development company there are great risks, and caution is advised.