One of the most popular methods of drawing a profit from the biotechnology space is to pick up an exposure to a major data release or Food and Drug Administration decision. It can be a risky strategy since by their very nature these decisions do not always go the way investors hope, but it can also bring with it plenty of reward for the operator that picks the right side of the outcome.
We have just moved into a fresh month and a number of companies in the sector, big and small, have major binary events slated to resolve before the next four weeks draw to a close. Here is a look at one such event that markets are going to be watching very closely and an attempt to draw a conclusion as to how the situation is likely to unfold for the company, and the shareholders, in question.
The company is Portola Pharmaceuticals Inc. (PTLA, Financial).
Portola is a health care company with a focus on the development and commercialization of therapeutics in the areas of thrombosis, other hematologic disorders and inflammation for patients having limited or no approved treatment options. Essentially, anywhere there is an unmet need in a blood disorder or disease, Portola is there.
The company has two lead development assets β one called Betrixaban and one called Andexanet alfa β and they make for a pretty interesting set of assets. Betrixaban is what is called a factor Xa inhibitor and is designed as an anticoagulant; that is, it is designed to stop blood from clotting too easily. Factor Xa is a key component in the blood clotting process, so through its inhibition, the idea is blood clotting can be stymied. Andexanet alfa, on the other hand, is what is called a recombinant modified human factor Xa decoy protein. It is designed to reverse the inhibition of factor Xa and β in doing so β increase the level of clotting in the blood.
The reason these two drugs are interesting in their inclusion as a duo of lead portfolio assets, then, is they are designed to work against each other. One stops clotting, one stops the other from stopping clotting.
Anyway, that is a digression.
Neither has had a particularly easy development pathway. The company picked up a complete response letter (CRL) for Andexanet alfa back in August of last year, with the FDA citing manufacturing issues as the root of the issue. Subsequent to the CRL, Pfizer Inc.Γ (PFE, Financial) and Bristol-Myers Squibb Co. (BMY, Financial) stepped in to offer the company a $50 million loan to help resolve the issues; something Portola is working on as we speak. In February, the company also sold a bunch of the rights to the drug to HealthCare Royalty Partners, which will see it pick up royalty interest on future sales of the drug.
Betrixaban was different but had no more luck. The drug failed to meet its primary endpoint in a phase III study designed to underpin a registration application. Many wrote the program off subsequent to this failure.
This was a mistake, however.
The trial failed in a subsection of patients, specifically those who are classed as acutely ill and have what is called an elevated d-dimer level. We do not need to get into this in too much detail, but what is important is these are patients that have been hospitalized for serious non-surgical conditions such as a heart attack, severe infection, stroke or a host of rheumatic disorders and that are at risk of developing a blood clot because of subsequent immobility.
Three cohorts were looked at in total β one with elevated d-dimer levels and two others. The latter two were larger and in both of these studies, Betrixaban outperformed the control arm.
The FDA is aware of this cohort split and accepted a registration application despite primary endpoint failure because of this awareness. The real story here, then, is the headlines suggested failure while the underlying data suggests success. The FDA focuses on the latter, of course, and this makes the drug's chances of approval come Prescription Drug User Fee Act (PDUFA) very high.
What about the market?
Total sales for a generic anticoagulant called enoxaparin (the one against which Betrixaban was pitched in the above-described trial) came in at $1.4 billion in 2015. Enoxaparin, however, is an injectable drug, while Betrixaban is oral administration. This gives it a distinct advantage over its competitor, and the fact the company is going after a long-term administration and treatment-type indication in this group of acutely ill patients means the total market outstrips that of Enoxaparin, regardless of administration type.
Needless to say, and even if Andexanet alfa fails completely, there is a large upside potential on an approval for Betrixaban in the U.S.
The bottom line here is the company had a bit of bad luck last year but has since recovered and is now heading into a PDUFA that could turn its fortunes around. There is risk, of course, as there is with any binary-type biotech decision, but in this instance, the risk is mitigated by underlying data and market misinterpretation of the latter.
The PDUFA is June 24.
Disclosure: The author does not own any of the stocks discussed in this article and does not intend to open a position in any stocks discussed within the next 30 days.
