Portola Pharmaceuticals, Inc. (NASDAQ:PTLA) Q2 2019 Earnings Conference Call August 7, 2019 4:30 PM ET
Cara Miller - Vice President of Investor Relations & Corporate Communications
Scott Garland - President & Chief Executive Officer
Mardi Dier - Chief Financial & Chief Business Officer
Sheldon Koenig - Chief Commercial Officer
Conference Call Participants
Matthew Phipps - William Blair
Yigal Nochomovitz - Citigroup
Matthew Harrison - Morgan Stanley
Phil Nadeau - Cowen & Company
Jay Olson - Oppenheimer.
Good day, ladies and gentlemen. Welcome to Portola Pharmaceuticals Conference Call. This call is being recorded. At the end of the company's prepared remarks, we will open the call for questions and provide specific instructions. [Operator Instructions]
I would now like to turn the call over to Cara Miller, Portola's Vice President of Investor Relations and Corporate Communications. Please, go ahead.
Thank you and good afternoon, everyone. Today we released our financial results of the second quarter 2019. The press release and accompanying slides which you can advance through the webcast are available on the Investor Relations section of the Portola website.
In the room with me today are Scott Garland, President and CEO; Mardi Dier, Chief Financial and Chief Business Officer; and Sheldon Koenig our Chief Commercial Officer. Also with us this morning for the Q&A portion of the call are Pam Conley, Senior Vice President of Research; Jeff Myers, Vice President of Medical Affairs; and Jeet Mahal, Vice President Strategic Marketing.
Before we begin I would like to remind you that remarks on this call will contain forward-looking statements. For a more detailed description of important risk factors that could cause our actual results to differ materially please refer to our annual report on Form 10-K.
With that, I will turn the call over to Scott Garland.
Thank you, Cara. Hello, everyone, and thank you for joining us on our second quarter 2019 financial results call. This is an exciting and important time for Portola. We're operating from a position of strength, as illustrated by three key points I'd like to talk about today.
First, our team's exceptional execution on the launch of Andexxa is driving continued revenue growth. For the second quarter, net product revenues for Andexxa were $27.1 million, marking our fifth consecutive quarter of strong revenue. We also added 125 new accounts to our existing hospital base this quarter.
There is continued strength in demand for Andexxa. In fact 74% of our sales in the quarter came from reorders, reflecting real pull-through and increasing use in patients. In addition, our reorder rate remains steady at 55% for the quarter, in tandem with an incremental number of hospital adds that was beyond our expectations and a significant percent of new hospitals coming on late in the quarter. All this gives us great confidence in our execution and excitement for the long-term growth of our business. Sheldon will talk more about this in a moment.
We recently conducted an extensive benchmarking analysis of nearly 50 hospital product launches over the last 30 years. Of those, 10 went on to have sales between $600 million and $2.5 billion. I'm proud to share that based on our first five quarters of revenue, Andexxa is one of the top five hospital drug launches over the last 30 years. We are clearly off to a fantastic start.
Second, the U.S. Factor Xa inhibitor market is large and growing. According to the most recent proven data available through June of 2018, approximately 5 million patients in the United States are taking a Factor Xa inhibitor. Of these, approximately 150,000 patients are hospitalized each year with serious life-threatening bleeds.
Factor Xa inhibitors are an important medical advance. The use of these medicines and therefore the risk of related bleeds continues to grow by double digits every year. For example, just last week BMS recorded 30% demand growth for Eliquis in the United States over the second quarter of last year.
The current need for Andexxa is directly related to the number of patients on a Factor Xa inhibitor, as shown by Slide six, through market growth, label expansion and the genericization of Factor X inhibitors, we estimate that by 2025 the overall number of patients needing Factor Xa reversal in the U.S. and Europe could exceed 700,000 patients.
In addition, awareness of the value of Andexxa is continuing to increase among healthcare practitioners as well as key government agencies like CMS. As we announced on Monday, CMS increased the maximum reimbursement amount of Andexxa NTAP from 50% to 65%, or up to approximately $18,000. This is a very important milestone that will further expand Medicare beneficiary access to Andexxa.
Also last week, the Joint Commission known as JCAHO, the oldest and largest accrediting body for hospitals in America issued a new report on Doex. The report directs at credited hospitals and critical care centers to stock antidotes appropriate for the use with each type of anti-coagulant. Reports like these are making it clear that Andexxa is becoming the standard of care for patients on apixaban or rivaroxaban. Sheldon will talk more about this in a moment.
Third, yesterday we announced our first sales of Ondexxya in Europe marking the official launch of Andexxa -- of Ondexxya in our Wave one countries. Achieving these sales milestones in advance of our planned time lines demonstrates excellent execution from our team in Europe as well as strong initial demand in the market. As you may recall, the number of patients in our Wave one countries is equal to or potentially even greater than the 150,000 estimated patients in the United States. These three drivers launch execution and expanding U.S. market and strong demand in Europe all reinforce our confidence in the long-term potential of Andexxa.
Before turning it over to Sheldon to talk more about our launch progress in the U.S. and Europe, I want to provide a few updates on our label expansion plans for Andexxa as well as an update on SYK/JAK cerdulatinib. I'll start with Andexxa. We are on track to initiate a registrational study in urgent surgery later this year or in early 2020 based on the timing of our discussions with the FDA. We estimate that approximately 60,000 patients on rivaroxaban or apixaban in the United States must undergo urgent surgery each year and could benefit from the use of Andexxa.
In addition we're working with the FDA on plans for the potential inclusion of other Factor Xa inhibitors in our label. We're also continuing to generate new data that support Andexxa's unique position as the only agent approved for the reversal of apixaban or rivaroxaban and endorsed by multiple clinical practice guidelines. We recently presented compelling in vitro data demonstrating that four factor PCCs do not restore thrombin generation in plasma treated with Factor Xa inhibitors except at very low levels of anticoagulation.
In contrast, data from the same thrombin generation assay demonstrated that Andexxa as fully corrected the inhibition of thrombin generation by apixaban or rivaroxaban across a broad range of inhibitor concentrations. These data further support the unique mechanism of action of Andexxa as distinct from PCCs which are effective in reversing warfarin but not approved for the reversal of the Factor Xa inhibitors. Adding to this growing body of evidence we are -- be presenting new subsets in the ANNEXA-4 study at major medical meetings this year.
Moving to cerdulatinib. In June, we presented data on cerdulatinib in combination with rituxan in follicular lymphoma at two international hematology conferences. In a group of heavily pretreated patients, cerdulatinib achieved a 45% overall response rate as a single agent and 62% overall response rate in combination with Rituxan. Cerdulatinib was generally well tolerated with a manageable AE profile.
As mentioned previously, we plan to start a registrational study for cerdulatinib MPGCL by year-end. This is an important and exciting time for Portola and for the patients we serve. We are confident in our strategy and execution in this growing market and we continue to expand our launch and drive value.
And with that I'll turn the call over to Sheldon for a detailed update on our launch progress.
Thank you, Scott and hello everyone. I'd like to start by echoing Scott's enthusiasm about the success of this launch and the long-term potential for this important medicine. The team is executing well and we have some significant updates to share. First, we continue to optimize our targeting efforts based on a number of key analytics, including Factor Xa today inhibitor usage by ZIP code and hospital discharge data on patients with serious life-threatening bleeds requiring hospitalization. As a result, we have expanded our hospital targets to 2,100, which represents about 80% of the market potential.
Second, as Scott mentioned, we are consistently increasing our hospital base and have added 125 accounts in the second quarter. Adding new accounts is just one part of ensuring continued growth. The second component is deepening utilization within the existing accounts and we are seeing encouraging trends. As Scott mentioned, our reorder rate in the second quarter was approximately 55%. More importantly, reorders in the second quarter grew to 74% of our total Andexxa revenues, reflecting real pull-through and increasing use in patients.
Additionally, we have had several important developments on the reimbursement front. First, as Scott mentioned, CMS has increased the NTAP reimbursement for Andexxa to a maximum of 65% or approximately $18,000 effective October 1st of this year. This decision is important for two reasons. First, it will expand patient access to Andexxa; and second, it underscores the breakthrough innovation Andexxa represents and the clinical value of rapidly reversing the anticoagulating effects of apixaban and rivaroxaban.
In April, we received our new C code allowing for outpatient reimbursement. And in June, we began participating in federal supply schedule pricing, which ensures access across the Veterans Administration or VA Health System. The VA is one of the largest health care systems in the U.S. and we are excited to share that a number of VA hospitals have already ordered Andexxa now that this pricing is available.
Finally, Andexxa continues to gain support from leading KOLs in the medical community and health care outcome experts. Andexxa now recommended on 16 medical society guidelines including nine in Europe and has been recognized by the Joint Commission in two separate ways. Joint Commission is an independent non-profit organization that accredits and certifies nearly 21,000 health care organizations including hospitals in the U.S. and is recognized nationwide as a symbol of quality and performance standards.
In early July, the Joint Commission updated national patient safety goals for anti-coagulation therapy, which require accredited institutions to use evidence-based practice guidelines for the reversal of anticoagulation and advises providers to be aware of appropriate reversal agents for each medication. And as Scott mentioned, just last week the Joint Commission issued its sentinel event alert Issue 61. Importantly, that report noted that stopping bleeding in patients taking Doax requires different intervention than for warfarin. Again, this highlights the unique role of Andexxa as the only approved reversal agent for apixaban or rivaroxaban.
Moving to our progress in Europe. We were thrilled to share with you yesterday the first half of Ondexxya in Europe which underscore the experience and execution of our team in Europe and initial demand for this novel therapy. As you know, launching in Europe is a country-by-country process and it happens in stages. These first sales in Austria and the U.K. mark our official launch and the availability of Ondexxya for ordering in Austria, the U.K., the Netherlands, Sweden, Denmark and Finland.
Germany is also part of our Wave 1 launch and we expect Ondexxya to be available there later this year. Reimbursement discussions with health authorities in key countries like Germany and the U.K. are underway. We plan to submit our dossier to AMNOG later this year, which will allow us to start Ondexxya sales in Germany as we work through the process, which we expect to be completed later next year.
In addition, we are making progress in applying for the new, which is similar to the NTAP payment we have in the U.S. and allows for German hospitals to receive supplemental payments for Ondexxya. In the U.K., we have submitted our clinical and economic dossier to NICE and we are on the agenda for review and the meeting late in the first quarter of 2020. We expect the process to be complete and full reimbursement to be in place by the second half of 2020.
In closing, we are incredibly proud of the progress we have made in the U.S. and in Europe. The need for Andexxa is well defined and we remain confident in the market opportunity in front of us.
With that, I'll turn the call over to Mardi for a review of the financials.
Thank you Sheldon and hello everyone. Please refer to our press release issued today for a summary of our financial results for the second quarter, and I'll touch on the highlights. Our second quarter results reflect the fifth consecutive quarter of strong launch execution and growing demand for Andexxa.
Total revenues were $28.4 million for the second quarter driven by $27.1 million in net revenues on Andexxa. Total GAAP operating expenses for the second quarter were $92.4 million, down from $107.7 million for the same period in the prior year. This decrease is driven primarily by our Gen 2 manufacturing costs now being capitalized into inventory.
Research and development expenses for the second quarter were $33.7 million compared to $66.4 million for the same period in 2018. This number includes a $3.1 million impairment charge taken during the second quarter related to the discontinuation of an early development program. The year-over-year decrease in R&D expense is mainly due to the Gen 2 manufacturing costs I just mentioned.
On a non-GAAP basis, R&D expenses for the second quarter were $30.4 million, which excludes the impairment charge I just previously discussed. SG&A expenses for the second quarter were $53.7 million compared to $40.2 million for the same period in 2018. This increase is mainly due to the expansion of our sales force and other commercial-related activities for the launch of Andexxa in the U.S. and Ondexxya in Europe.
Cash, cash equivalents and investments as of June 30, 2019 totaled $274 million compared to $317 million at December 31, 2018. We have cash available to fund our operations through the end of 2020. As shown in the Q1 and Q2 results, we continue to see strong growth in Andexxa demand and sales in the first six months of 2019.
Our operating expenses are in line with our 2019 guidance and we have cash through 2020. As we look towards the third quarter, we're excited to build on the momentum we have built so far this year.
With that, I'll turn the call back over to Scott for closing remarks.
Thank you, Mardi. In the first half of the year, our concentration has been on three drivers of success for Portola launch execution and expanding U.S. markets and strong demand in Europe. Building on those achievements as we head into the second half of the year, we're focused on expanding our hospital base and deepening account usage in the United States, our launch progress in Europe and bringing this important medicine to patients around the globe. We're very pleased with the launch trajectory of Andexxa thus far and the potential for Ondexxya in Europe. We look forward to updating you on future calls. I want to thank you for your continued interest in Portola.
And with that, I'll turn it over to questions. Operator?
[Operator Instructions] Our first question or comment comes from the line of Matthew Phipps from William Blair. Your line is open.
Hi, thanks for taking my question. And just congrats on the real continued strong execution this year. Wanted to touch a little bit on the new hospital adds in the U.S. You mentioned 125 in the quarter. That's obviously a little bit of an uptick from the previous quarters, but you did mention Scott that some of those, I guess came in kind of late in the quarter. Do you think that affects Q3 new hospital adds?
And then also Sheldon you mentioned, an increasing utilization trend with existing accounts. I think you were that -- do you think this is kind of a natural progression of these physicians expanding beyond maybe just IT educations initially? It's treating more patients? Or is there any other color you can give us there?
And then lastly, how should we think about the rollout in Europe? Is there similarities to the U.S.? Obviously, some pricing work's going to happen here with Nice and Germany and such, but can you give us any kind of guidance I guess? With our real guidance.
Yes. Sure Matt. Why don't I actually ask Sheldon to take all three of those? Your comments about new adds?
Matt, thank you for your question. So let me just start with the reorders. As I mentioned again, we exceeded our expectations by having 125 new accounts for this quarter. This is something that as we continue our rollout as you know in April, we added additional 40 representatives which gives us a total of approximately 116.
So this is something that we will continue to monitor. That 125 new accounts – again, one thing I want to talk about is the fact that many of them did come in late quarter. As it relates to how that will affect quarters moving forward, I'm not really going to comment on.
But what I do want to bring to the attention again is that 74% of the revenue of the second quarter came from reorders. So that really again gives us confidence in our pull-through and demand that we're seeing for Andexxa. The one last thing is that, 74% of revenue from reorders that's also - we're seeing that grow over quarter-on-quarter basis.
As we look to Europe and so we're very early in the stages of Europe. Again, we're thrilled with the fact that we were able to report our first sale yesterday in Europe. Again this story speaks to the execution and the team that we put into place in Europe.
And we'll be following this closely over the next quarters and we'll continue to update you.
And then Matt I think you asked about whether or not we're seeing increasing use beyond intracranial hemorrhage patients. A little bit too early to tell in the quarter. We do track that. We do track it with a chart.
What we have said in the past and what's very encouraging is that we are definitely seeing usage in patients outside of the intracranial hemorrhage space, whether or not that is going to continue going forward, we certainly expect that. But it's still a little bit early to tell.
Thank you. Our next question or comment comes from the line of Matthew Harrison from Morgan Stanley. Mr. Harrison, are you there? Our next question or comment comes from the line of Yigal Nochomovitz from Citigroup. I apologize. Your line is open.
No worries. Thanks good afternoon. And thanks for taking my question. Scott, you mentioned very interestingly, some of the other hospital launches that have compared very well against.
Could you give us just a little bit more detail, as to what those five launches were over the last 30 years? And if those were pure hospital launches or if there was some mix of hospitals and outpatient or clinic sales for those? Thanks.
Yeah Yigal, we looked at 50 total hospital drug launches over the last 30 years. I don't actually have all top 10 in front of me. I do know they included Lovenox. They include Cubicin. They included Actavis.
They included a number of drugs that went on to be highly successful. But I can't remember exactly what the top 10 are. We could certainly follow-up with you Yigal with the list. And provide that to you offline.
Okay. Great, thank you. And then regarding NTAP, I believe in the press release on that, you would get either two or three years. Could you just clarify whether that -- what determines the range on two versus three years for NTAP?
And then, once that expires, is the expectation that the full cost of AndexXa is going to be incorporated into the DRG rates? Or only what was reimbursed under the NTAP? And then more broadly what -- how will portfolio play a role in, advocating for the DRG recalibration? And do you have seat at the table on those discussions? Thank you.
Okay. I'll give that one to Sheldon.
Hi. Thanks for the question. And so as it relates to NTAP, first of all, again we're really excited, moving from 50% to 65%. This reinforces what we have always stated before, as it relates to Andexxa is really realized, as a breakthrough therapy and as a new technology. As we know, it's not easy to get the NTAP designation.
A few products do receive it. Related to the timing of two to three years and also legislation and policy as it pertains to, how this will fit into a DRG or a DRG carve out.
We've recently hired a Vice President of Market Access, who has a lot of experience in this area and in policy. And we're currently now working with CMS. And can update you in future quarters on how this will play out.
Okay. Great and then, just final question for me is, with respect to the C-code that was issued, I believe on the first day of Q2, 2019, just wondering if you could comment on the percent of the volume is getting reimbursed through Part B on the outpatient angle. Thank you.
So that's -- as we mentioned earlier the C-Code was, effective as of April 1 of this year in 2019. Unfortunately, CMS is not as fast, we would like as far as giving out data. So we still have to wait some time. And we'll definitely update you. I can provide you though, an anecdote of how the C Code works.
And recently we just heard a report of a patient, who is in a community-based hospital, who presented with intracranial hemorrhage. And was started with Andexxa and airlifted to a Tier 1 institution.
And the physicians were just amazed by how this patient was doing. As we do get new data though, as it relates to CMS and the utilization of the C code I'm sorry we will definitely share that with you.
I understood. Thanks for taking my questions.
Thank you. We'll try Mr. Matthew Harrison from Morgan Stanley. Once again, your line is open.
Hi. Good afternoon. Thanks for taking my questions. I appreciate it. I guess maybe two for me. I'm sorry I may not have heard this. So I apologize if I ask again. But on Europe, can you just talk about, the components of the reimbursement process in Europe that you're going to have to go through. And just broadly how we should think about your ability to add and stock hospitals that you get online in each country there?
And then for the U.S., I don't know if I want to ask this. But can you just talk about the rate of your ability to continue to add hospitals? So do you continue to expect that to increase quarter-over-quarter? Or do you think 100 to 125 is a pretty steady rate? Thanks.
Let me take number two around the rate of hospital adds and then I'll have Sheldon comment on the European adds. Obviously the 125 adds that we had this quarter was ahead of expectations. I have been saying all along we expected a linear uptick in hospital adds 100 -- pretty much 100 in the quarter. So the fact that we had 125 was something we feel really good about.
In terms of how that's going to look going forward, it's a little hard to say and I don't want to give any forward-looking guidance. I will tell you we're really happy with what we're seeing both in terms of new account adds as well as keeping a utilization. And we'll certainly give you updates as we move forward.
Moving to Europe and the European reimbursement process, I'll turn that over to Sheldon.
Thanks for the question. So as you know the reimbursement environment in Europe is a country-by-country basis. As I mentioned we've currently just submitted our NICE dossier for the U.K. and that will be under review in 2020. We hope to submit our dossier for the AMNOG process, which will take place in Germany and that will happen sometime in the September, October time frame.
Again we're really early here as it relates to Europe and where we have started. It's great to see these first sales and the interest and we'll continue to update you as we move forward through this, but strong execution in Europe and we'll continue to update you.
And just one comment. Hi, this is Mardi. On the AMNOG process, once we're able to submit the dossier, which will happen soon then we're able to -- we have a year of free pricing or a way for free pricing period before we start negotiation with health authorities. So we'll be able to sell in Germany very soon.
Anything else, Matt?
No, no that's it. Thank you very much.
Thank you. Our next question or comment comes from the line of Phil Nadeau from Cowen & Company. Your line is open.
Good evening. Thanks for taking my questions and congrats on the progress. Two for me. First, it looks like in this quarter with about 400 stock hospitals and $27 million of revenue you did about 67,500 per stock hospital, which is consistent with the revenue per stock hospital in the past. Does it concern among investors that over time as you get late doctors to stock a drug their utilization is going to be less than the people who have stocked already, so the revenue growth is going to begin to plateau or decelerate? What are your thoughts on that concern that's in the marketplace?
Yeah. Let me go ahead and answer that question. That's definitely not what we're seeing. As you look at this average account per usage per month, it's important to remember the mix of accounts that have been coming on over time. So as we move from our early supply program into our Gen 2 launch we're seeing more and more Tier 2 and Tier 3 accounts come online. So that mix is important when you're thinking about how you calculate that average use per patient per month.
What we are seeing as we've looked at a cohort of our institutions, large important institutions that came on the early our EAP and actually what we're seeing is increased usage over time or deepening usage over time. There's nothing that we're seeing today that makes us concerned about a lack of pull-through or a plateauing of our utilization.
And do you have more Tier 1 hospitals to add over time. So are you -- is the amount of hospitals that get added in the next few quarters is going to be similar to what's happened in the last few?
I would expect the mix to stay somewhat consistent although we do have more penetration more opportunity to grow in the Tier 1 accounts. The only thing I want to point out which is driving our usage as well we think that there's really three things. There's account adds that are driving usage. There's deepening of usage in existing accounts. But then there's the underlying growth of the Factor Xa market. That's significant. And that's something we want to point on the call today. Reiterate that BMS recorded a 30% increase in volume for Eliquis over the prior year. So those three things are really driving the growth right now.
Perfect. And then second question is on the addition of the addition or the increase in the new technology add-on from 50% to 65% of cost. Do you have a sense of how many hospitals out there today are either limiting -- utilization because that payment was only 50% of cost? And/or how many hospitals are out there who did not begin to stock AndexXa because the new technology add-on payment was too small of a percentage of cost?
So we've always viewed the NTAP again as somewhat advantageous that again really highlights the value of AndexXa. Unfortunately, we don't have the data yet as it relates to the utilization of NTAP. We do make institutions aware of NTAP. They're interested in this. And as we get that information once we get it we'll supply it. Similar to the C code there's a delay in the timing of actually getting that type of data.
Perfect. Thanks for taking my questions.
Thank you. Our next question or comment comes from the line of Jay Olson from Oppenheimer. Your line is open.
Hey. Congrats on the quarter and thanks for taking my questions. A couple of them. First one is about the reorder rate which seems to have stabilized at 55%. Is that related to the fact that you added a large number of new hospitals towards the end of the quarter and so they wouldn't not have needed to reorder? Or do you think that 55% is more of a long-term steady-state reorder rate?
Yes, it's definitely because of the incremental account adds that we have this quarter and the fact that they came on late. We do expect that reorder rate to continue to go up. One of the challenges of the reorder rate is that it's heavily influenced by the denominator and as the denominator increased incrementally in this quarter and the timing of which these accounts came on they don't have enough time to actually reorder.
So that is one of the challenges that's associated with this reorder rate is why we provided the percentage of our revenues that are coming from reorder and we're seeing a very steady increase in that over time. But that essentially explains it. We definitely expect the reorder rate to continue to increase.
Great. Thank you. That's very helpful. And then I think earlier this year you had mentioned that you were making AndexXa available on consignment. Can you just talk about how that's going and how may that -- that may have impacted demand?
Yes. So we started consignment earlier this year. Again this is something that allows hospitals and patients to have greater access just another way of having access to AndexXa. This is something that is really operationalized our specialty distributors. It still represents a small portion of our business.
And Jay just to clarify consignment is an arrangement between the specialty distributors and the hospitals. It's not something that we own or provide. It's really a financial arrangement. So as Sheldon said it provides more access. It really allows the hospitals to have AndexXa on-site before they pay for it but that's the special distributors underwrite that so to speak. And it provides that service for the hospitals.
And I'll just mention one of the things from a demand standpoint, it's transparent the way we look at stocking is how much inventory the special distributors have in just between first and second quarter that stayed steady at about two weeks of demand and we think that will continue.
Great. Thanks for additional color. Appreciate it.
Thank you. [Operator Instructions] I'm showing no additional audio questions in the queue at this time. I would like to turn the conference back over to management for any closing remarks.
So thank you for your continued interest in Portola. Have a great rest of your week. Thanks.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.