Is an Acquisition in Portola Pharmaceuticals' Future?

Long-time Portola Pharmaceuticals (NASDAQ: PTLA) CEO Bill Lis has decided to retire, and the surprising decision is boosting bullish investors' optimism: Some feel that the C-suite shake-up presents the perfect opportunity for a suitor to come knocking on this biotech's door. The company is in the midst of launching two potential blockbuster drugs that have recently won approval from the Food and Drug Administration, and with commercial revenue about to start rolling in, bidders have reason to be interested. Is Portola a stock worth owning?

A decade of promise delivers

After leading the strategic development and launch of Xarelto, the top-selling factor Xa anticoagulant, while at Johnson & Johnson's (NYSE: JNJ) Scios unit, Bill Lis joined Portola in 2008 as vice president of business and commercial operations. He was promoted to chief operating officer in 2009, and then again to CEO in 2010.

Lis has been at the helm throughout the development of AndexXa, a factor Xa antidote, and Bevyxxa, a factor Xa inhibitor for use in patients at risk of clotting after hospitalization. During his tenure, Lis has endured some challenging times, including the issuance by the FDA of a complete response letter to AndexXa, and head-scratchingly hard-to-decipher phase 3 trial results for Bevyxxa in 2016.

Despite the setbacks, Lis has stayed the course at Portola, and he's been rewarded for his perseverance with two FDA wins in the past year. He secured a go-ahead to begin marketing Bevyxxa in December 2017, and more recently, the FDA gave a green light to AndexXa in May 2018.

The approvals are significant because Bevyxxa and AndexXa have billion-dollar blockbuster potential.

Although factor Xa drugs are on the market for other indications, Bevyxxa is the only one that's won an OK to prevent clots in acutely ill medical patients following hospitalization. Historically, Lovenox has been the drug given to patients in this setting, and at its peak, that drug was generating nearly $3 billion per year in sales. Given that Bevyxxa outperformed Lovenox in its phase 3 study, the company has a good shot at disrupting how doctors attempt to prevent clotting in hundreds of thousands of patients per year.

AndexXa's opportunity is big, too. AndexXa is the first antidote approved to reverse the anticlotting activity of the factor Xa medicines Xarelto and Eliquis, the latter of which is co-commercialized by Pfizer (NYSE: PFE) and Bristol-Myers Squibb (NYSE: BMY).

Xarelto, which won approval in 2011, and Eliquis, which won approval in 2012, have seen their labels expand to include use in more and more patients over the years; as a result, they're significantly replacing the use of the widely prescribed anticoagulant warfarin. In the first quarter of 2018 alone, Xarelto's and Eliquis' combined sales exceeded $2 billion.

In trials, AndexXa successfully reversed greater than 90% of the anticoagulant activity of Xarelto and Eliquis, suggesting that it could become a must-stock drug for hospitals. There were about 117,000 factor Xa inhibitor patients admitted to U.S. hospitals per month because of bleeding events in 2016, and of those admitted, 2,000 people per month died.

Could a deal get done?

Portola's board of directors says it's conducting a search for a replacement CEO, and that Lis will stay on "through August 1, 2018 to ensure a smooth transition, after which time he will remain in an advisory role."

It's possible that the board already has some CEO candidates in mind, but it's also a possibility that the C-suite transition presents an ideal opportunity for a larger company with an already established commercial footprint to swoop in and make an acquisition offer.

There's no evidence of mergers-and-acquisitions interest yet, but there could be a willingness to team up given Portola's leadership and deals in the company's past.

Lis beneficially owns or controls about 675,000 shares in Portola as of March 31. Prior to joining Scios (which J&J acquired in 2003 for $2.4 billion), he was senior director of marketing and new products for Millennium Pharmaceuticals (now part of Takeda Pharmaceutical), a role that came courtesy of Millennium's $1.7 billion acquisition of COR Therapeutics in 2001.

Most of Portola's board has M&A or venture capital experience too, including:

  • Charles Homcy, a Portola co-founder and venture partner at Third Rock Ventures, who was formerly executive vice president of research and development and director at COR Therapeutics. He owns or controls 427,693 shares of Portola as of March 31.
  • Jeffrey Bird, a managing director at Sutter Hill Ventures, a venture capital fund. He owns or controls 1,077,666 Portola shares as of March 31.
  • Laura Brege, a former COR Therapeutics executive and general partner at Red Rock Capital Management. She owns or controls 37,500 Portola shares.
  • John Johnson, the former CEO of ImClone Systems, which was acquired by Eli Lilly for $6.5 billion. He owns 47,500 Portola shares.

The company's CFO (and now, acting co-president), Mardi Dier, who owns or controls over 214,070 shares in Portola as of March, was vice president of investor relations at Chiron Corporation until its acquisition by Novartis in April 2006.

Also, Tao Fu, Portola's chief commercial and business officer, was formerly vice president and head of mergers and acquisitions and alliance management at Bristol-Myers. Before that, he was vice president of business development at J&J, where he orchestrated 20 business development transactions. Fu owns or controls over 173,449 shares in Portola.

The list goes on and on. But the point is that there's plenty of M&A experience here and, via venture funds, investor-friendly representation that could open the door to a deal.

Remains to be seen

Ultimately, it's anyone's guess whether J&J, Pfizer, or Bristol-Myers (or any other company) would want to acquire Portola and tuck AndexXa and Bevyxxa into its factor Xa product portfolio. But all three of those companies provided financing that supported AndexXa development, and Pfizer and Bristol-Myers Squibb have already inked the rights to AndexXa in Japan, so there's interest in that product at least.

Lis's departure now is curious because he has a background in commercializing drugs, but there are any number of reasons why CEOs move on, so his retirement isn't necessary an M&A signal. Investors should always consider a company's ability to thrive on its own, anyway. And fortunately, Portola's opportunity appears big enough to suggest it doesn't need to do a deal to reward investors.

Portola has hired 56 sales reps to market its drugs as of December (plans are to have 120 people hired by year's end); management estimates Bevyxxa's addressable market is between $3 billion and $4 billion, and AndexXa's market exceeds $2 billion. Given the size of those markets, I plan on continuing to hold Portola shares, regardless of what happens with M&A.

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Todd Campbell owns shares of Pfizer and Portola Pharmaceuticals. His clients may have positions in the companies mentioned. The Motley Fool owns shares of Johnson & Johnson. The Motley Fool has a disclosure policy.