Q2 2019 Earnings Call

This call is being recorded.

We ended the company's prepared remarks, we will open the call for questions and provide specific instructions.

I would now like to turn the call over to Carol.

<unk>, Vice President of Investor Relations and corporate Communications. Please go ahead.

Thank you and good afternoon, everyone. Today, we released our financial results for the second quarter 2019.

At least an accounting side once you get down to webcast are available on the Investor Relations section of the Portola website.

In the room with me today.

President and CEO , Mardi Dier, Chief Financial Officer.

Sheldon Kennedy, our Chief commercial officer.

Also with US. This morning. Thank you any portion of the call RPM Connolly Senior Vice President of research, Jeff Meyers, Vice President Medical Affairs, and she was vice President strategic marketing.

Before we begin I'd remind you that remarks on this call will contain forward looking statements.

A more detailed description risk factors that could cause our actual results to differ materially. Please refer to our annual report on Form 10-K .

I will turn the call August .

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 teams exceptional execution on the launch of index is driving continued revenue growth.

Second quarter net product revenues for index or were 27.1 million, marking our fifth consecutive quarter of strong revenue. We also added 125, new accounts to our existing hospital based this quarter.

There is continued strength and demand for index 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 remained 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.

Oh this gives us great confidence in our execution and excitement for the long term growth our business Sheldon we'll 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.

It was 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 and actually 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 10 inhibitor market is large and growing according to the most recent truven data available through June of 2018, approximately 5 million patients in the United States are taking a factor today inhibitor.

Upbeat approximately 150000 patients are hospitalized each year with serious life threatening fleets.

Dr. Tena inhibitors are an important medical advance use of these medicines and therefore, the risk of related fleet continues to grow by double digits every year.

For example, just last week BMS recorded 30% demand grow for Eliquis in the United States over the second quarter of last year.

Because the need for index is directly related to the number of patients on factor today as shown by slides six through market growth label expansion and the Genericization effect 10 inhibitors, we estimate that by 2025. The overall number of patient needing factor 10, a reversal in the U.S. and Europe could exceed 700000 patients.

In addition awareness of the value of index 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 index, the MTAP, 50% to 65% or up to approximately $18000. This is a very important milestone that will further expand Medicare beneficiary access to index.

Also last week, the joint Commission known as Genco, the oldest and largest accrediting body for hospitals America you shouldn't do report Ondecks. The report directs accredited hospitals and critical care centers to stock anecdotes appropriate for use with each type of anti coagulate.

Reports like these are making it clear that index is becoming the standard of care for patients on it makes the ban or river rock span. So we'll talk more about this in a moment.

Third yesterday, we announced our first sales of on taxi in Europe .

Mark at the official launch of index, Yeah, Ondecks in our wave one countries achieving these sales milestones in advance of our planned timelines 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 150000 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 index.

Before turning it over to Sheldon just talk more about our launch progress in the us and Europe I want to provide a few updates on our label expansion plans for index as well as an update on our Syk JAK inhibitor sort of flatten them.

I'll start with index.

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 60000 patients on rivaroxaban or exit band in the United States must undergo urgent surgery, each year and could benefit from the use of index.

In addition, we're working with the FDA on plans for potential inclusion of other factor today inhibitors in our label.

We're also continuing to generate new data that supported indexes unique position as the only agent approved for the reversal of a fixed the ban rivaroxaban and endorsed by multiple clinical practice guidelines.

We recently presented compelling in vitro data demonstrating that four factor pccs do not restored thrombin generation in plasma treated with factor 10 inhibitors, except to very low levels of anti coagulation.

In contrast data from the same thrombin generation assay demonstrated that index, a fully corrected the inhibition of thrombin generation biopic Savannah River rocks event across a broad range of inhibitor concentrations. These data further support the unique mechanism of action of index as distinct from Pccs, which are effective in reversing warfarin, but not accrue for the reversal of factor tending inhibitors.

Adding to this growing body of evidence.

We will be presenting new subsets of the next four studies at major medical meetings this year.

Moving to sort of flatten it in June we presented data on sort of lap in combination with Rituxan in Follicular lymphoma at two international Hematology Conference.

And a group of heavily pretreated patients sort of platinum achieved a 45% overall response rate as a single agent and 62% overall response rate in combination with our success.

Sort of flatten it was generally well tolerated with a manageable age profile as mentioned previously we plan to start a registrational study for several assets in PTCL by year end.

This isn't 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 under Sheldon for a detailed update on our launch progress. Thank you Scott Hello, everyone I'd like to start by echoing Scotts 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 Tena inhibitor usage by ZIP code and hospital discharge data on patients with serious life threatening bleeding requiring hospitalization.

As a result, we have expanded our hospital targets to 2100, 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 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%.

74% of our total andexxa revenues, reflecting real pull through an increasing use in patients.

Additionally, we have had several important developments on the reimbursement front.

First Scott mentioned CMS has increased the encap reimbursement for index to a maximum of 65% or approximately $18000 effective October onest of this year.

This decision is important for two reasons first it will expand patient access to index and second it underscores the breakthrough innovation and extra represents and the clinical value of rapidly reversing the anti coagulate effects of it takes to ban Roxa band.

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 be a health system.

The V.A. is one of the largest healthcare systems in the US and we are excited to share the number of VA hospitals have already ordered index yes.

As pricing is available.

Finally index it continues to gain support from leading shale wells in the medical community and healthcare outcome experts.

Index is 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 as an independent nonprofit organization accredited and certified nearly 21000 health care organizations, including hospitals in the U.S. and is recognized nationwide as a symbol quality and performance standards.

In early July the joint Commission updated national patient safety goals for anti coagulation therapy, which require accredited institutions teasing evidence based practice guidelines for the reversal of anti coagulation and advisors providers to be aware of appropriate reversal agent for each medication.

And as Scott mentioned, just lastly, the joint Commission issued its Sentinel event alert issued 61.

Importantly that report noted that stopping bleeding in patients taking no action requires different intervention that from Warfront again. This highlights the unique role of index as the only approved reversal agent for it takes a band River Oxy ban.

Moving to our progress in Europe , we were thrilled to share with you yesterday, the first out of Ondecks, yet in Europe , which underscore the experience and execution of our team and you're an initial demand for this novel therapy.

As you know launching in Europe , as a country by country process and it happens in stages.

These first sales in Austria, and the UK Mark our official launch any availability of ondecks, yet for ordering and Austria, the UK, the Netherlands, Sweden, Denmark and Finland.

Germany is also part of our lead one launch and we expect ondecks yet to be available. There later this year.

[noise] reimbursement discussions with health authorities in key countries like Germany, and the UK are underway.

We plan to submit our dossier to and not later this year, which will allow us to start on next year's sales in Germany as we work through the process, which we expect to be completed later next year.

In addition, we are making progress and applying for the new which is similar to the entertainment we have in the U.S. and allows for German hospitals to receive supplemental payments for ondecks yet.

In the UK, we have submitted our clinical and economic dossier Tonight and we are on the agenda for review at a meeting late in the first quarter of 2020.

We expect that 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 as well defined and we remain confident in the market opportunity in front of us.

With that I will turn the call over to Marty for a review of the financials.

He found 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 a fifth consecutive quarter of strong launch execution and growing demand for index.

Total revenues were 28.4 million for the second quarter, driven by 27.1 million in net revenues.

Total GAAP operating expenses for the second quarter were 92.4 million down from 107.7 million, but same period in the prior year.

The decrease is driven primarily by our Gen. Two manufacturing costs now being capitalized inventory.

Research and development expenses for the second quarter was $33.7 million compared to 66.4 million for the same period. In 2018 is 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 expenses, mainly due to the jet engine manufacturing costs I just.

On a non-GAAP basis R&D expenses for the second quarter was 30.4 million, which excludes the impairment charge I just previously discussed.

SGN expenses for the second quarter was 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 activity and the launch of the deck sat in the U.S. and then ondecks yet in Europe .

Cash cash equivalents and investments as of June Thirtyth, 2019 totaled $274 million compared to 317 million at December 31st 2018, we have cash available to fund our operations through the end of 2020.

As shown into Q1 and Q2 results, we continue to see strong growth in a DEXA demand and sales in the first six months of 2019, our operating expenses are in line with our 2019 guidance and we had cash through 2020 as we look toward the third quarter, we excited to build on the momentum built so far this year.

With that I'll turn the call back over to Scott for closing remarks. Thank you Marty in the first half of the year. Our concentration has been on three drivers of success for Portola launch execution, 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 or launch progress in Europe , and bringing this important medicine to patients around the globe were very pleased with the launch trajectory of indexes, thus far and the potential for a Dixie and 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.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your order is if your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Matthew Phillips.

Blair Your line is open.

Hi, Thanks for taking my question and congrats on my real continued strong execution. This year one of the two plus a little bit on the new hospital at the U.S. you mentioned 125 in the quarter and that's obviously a little bit of an uptick from the previous quarters, but you did mention.

Because of some of those are just came in kind of late in the quarter do you think about that.

Q3, New Hospital lab, and then also Sheldon you mentioned an increasing.

Utilization trend with existing accounts. So you were that or do you think this is kind of a natural progression of these.

In addition to expanding beyond maybe just IC AIDS patients initially to treating more patients or any other color you can give us there and then lastly.

How should we think about the rollout in Europe . There are similarities to the U.S., obviously, some pricing works noise to happen here with nice in Germany, and such but can you give us any kind of guidance I guess.

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Hey, Matt. Thank you for your 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.

And you know this is something that as we continue our rollout as you know in April we added an additional 40 representatives, which gives us a total of approximately 116.

And 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 and yes as it relates to how that will affect quarter is moving forward I'm not really going to comment on but I do want to bring to the attention again does that 74% of the revenue second quarter came from Reorders.

So that really again gives us confidence in our pull through and demand that we're seeing for andexxa.

On the one last thing is that 74% of revenue reorder. That's also were seeing that growing over a quarter on quarter basis.

And as it relates to Europe , and so we're very early in the stages of Europe again, we're thrilled with the fact that we're able to report our first sales yesterday in Europe again, this really speaks to the execution of the team that we put into place in Europe and that will be following this closely over the next quarters and we'll continue to update you.

Okay, and then Matt I think you asked about whether or not we're seeing increasing use John intracranial hemorrhage patients.

But too early to tell in the quarter, we do track that would be tracking with.

Charcoal.

What we have said in the past and whats 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, certainly expect up but it's a little bit to prove itself.

Okay. Thanks.

Right.

Thank you.

Our next question or comment comes from the line of Matthew Harrison from Morgan Stanley . Your line is open.

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Okay. All right. Our next question or comment comes from the line of your line.

Not promote it fits from Citigroup I apologize your line is open.

No worries. Thanks, good afternoon, and thanks for taking the question Scott you mentioned, a very interestingly some of the other hospital launches a that Uh huh.

Very well again 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 you know pure hospital launches or if there was some mix of hospital and outpatient clinic sales for those thanks.

Yeah. You go 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 included Cubist and they included Activations. 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 can certainly follow up call with the list and provide that to you offline.

Okay, great. Thank you and then regarding and tap I believe in the press release on that you would get either two or three years could you just clarify whether that how what determines the range on two versus three years for untapped and then once that expires is the expectation that the full cost of index a is going to be incorporated into the DRG rates or only what was reimbursed under the untapped and then more broadly what how we'll portola play a role in advocating for the DRG Recalibration and do you have a seat at the table knows discussion. Thank you.

Great I'll give that when Sheldon Yep, hi, all thanks for the question. So as it relates to end cap first of all again were really excited moving from 50% to 65%. This reinforces what we have always stated before as it relates to how index has really realized as a breakthrough therapy. It is a new technology on as we know.

It's not easy to get the ANTAD designation few projects to receive it related to the timing of two to three years and also legislation and policy as it pertains to.

And how this will fit into a g. Archie or a DRG carve out we've recently hired a vice president of market access was a lot of experience in this area and policy and we're currently now working with CMS I mean can update you in future quarters of how this will play out.

Okay, Great and then just final question for me is.

With respect to the the C code that was issued I believe on the first day of two Q1 9, just wondering if you could comment on the percent of the volume is going getting reimbursed through a through part b on the outpatient angle. Thank you.

Jealous.

So that as we mentioned earlier the C code was effective as of April 1st of this year 2019.

Unfortunately, CMS is not as fast feel like as far as giving US data. So we still have to wait some time. It will definitely update you I can myride you, though an anecdote obviously tried works and.

Recently, we just tried to report of a patient who is a community based hospital, who presented with intracranial hemorrhage and was started with an index and airlifted to a tier one 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 needless to say the utilization of the Sicad I am sorry.

We'll definitely share that with you.

Understood. Thanks for taking the questions.

If you go.

Thank you.

A word tried 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. It's all right I may not have heard that so I apologize if I ask again, but.

On on Europe can you just talk about.

The components of the reimbursement process in Europe , and you're going to have to go through and just broadly how you. How we should think about your ability to add in the hospitals that you get online and in each country there and then.

For the U.S.

I don't know if someone asked this but he is talking about the rate you get from your ability to do that.

We continue to expect that.

To increase quarter over quarter or do you think you know one hundreds of 125 is pretty steady rate.

Yes, let me take number two around the rate of glass and then I'll have Sheldon comment on the European assets.

Obviously, the 125 adds that we had this quarter was ahead of expectations I had been saying all along we expected the linear uptake in hospital ads.

Hundreds of pretty much 100, a quarter. So the fact that we that are 25 was something we feel really good about in terms of how that's gonna 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 in terms of you account adds as well as keeping the 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 Charlotte.

Hi, Matt. Thanks for the question. So as you know that the reimbursement environment in Europe as a country by country basis as I mentioned, we've currently just submitted are nice dossier for the UK now be under review and 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 timeframe again were really early here.

As it relates to Europe , and where we are where we have started.

And 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 well continue to update you.

Hi, This is Marty on the and Amnon process once we're able to submit a dossier.

Which will happen soon and were able to we had a year of free pricing or we see pricing period before we start negotiation with health authorities that we'll be able to sell in Germany very sound.

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No no thats it thank you very much.

Okay. Thank you.

Our next question or comment comes from the line of field Nadeau from Cowen and company. Your line is open.

Good evening, Thanks for taking my questions and congrats on the progress.

Two from me first it looks like in this quarter with about 400 stock hospitals and $27 million of revenue you did about 67500 per stock hospital, which is consistent with.

The revenue per stock hospital in the past, there's a concern among investors that overtime as you get late adopters.

Just talk a drug.

Their utilization is going to be less than the people who have stocked already so the revenue curve is going to going to begin to plateau.

Or decelerate what are your what are your thoughts on that concern that's in the marketplace.

Good let me go ahead and answer that question, that's definitely not what we're seeing.

As you look at the 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 early supply program into our Gen. Two launch, we're seeing more and more tier two and tier three accounts come online. So that mix is important when you're thinking about how you.

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 came on their own early our EAP and actually what we're seeing is increased usage over time are deepening usage over time, there's nothing that we're seeing today makes us concerned about a lack of holds through or plant idling of our utilization.

Do you have more tier one hospitals to add overtime. So or are you is the massive hospitals like it added in the next few quarters can be similar to what's happened in the last few.

I would expect that mix to stay somewhat consistent although we do have more penetration more opportunity to grow into tier one accounts. The other thing I want to point out which is driving usage as well we think that there's really three things as account adds that are driving usage theres deepening of usage in existing accounts, but then there is the underlying growth of the facts today market Thats significant and that's something we want to put on the call today create the BMS recorded 30% increase in volume or.

For liquids 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.

Or the increase in the Newtek technology add on from 50% to 65% of cost.

Do you have a sense of how many hospitals out there today are either limiting unit utilization because that that payment was only 50% of cost.

And or how many hospitals are out there who did not.

We can to stock index it because the new technology add on payment was too small of a percentage of cost.

Yes.

So we've always viewed the end tap again as somebody advantageous that again really highlights the value of index that Unfortunately, we don't have the data yet as it relates to utilization event at did you make institutions aware of and tap. They are interested in this and as we get that information and once we get it will supply is similar to the Sicad. There's a delay in the timing of actually getting that type of data.

Perfect. Thanks for taking my questions.

Thanks Bill.

Thank you. Our next question or comment comes from the line of Jay Olson from Oppenheimer. Your line is open.

Oh, Hey, congrats on the quarter and thanks for taking my questions.

And 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 would not have needed to reorder or do you think that 55% is more of a long term steady state reorder rate.

Yes, definitely because of the incremental account adds that we had this quarter and the fact that they came on late we do expect that reorder rates to continue to go up.

One of the challenges that the reorder rate is that it's heavily influenced by the denominator.

And as the denominator increased incrementally in this quarter and the timing at 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 strict order rate. It's why we provided the percentage of our revenues that are coming from reorder and we're seeing a very steady increase and that over time, but thats 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 index available on consignment can you just talk about how that's going and how may that.

Hi impacted demand.

Sheldon.

Yes, so we started to consignment earlier this year and again this is something that allows hospitals and patients to have greater access just another way of having access to index and this is something that is really operationalized, especially distributors and still represents a small portion of our business.

And Jay just to just to clarify consignment is as an arrangement between that especially distributor and hospitals, it's not something that that we own or provide it's really a financial arrangements when Sheldon hi, it's more assets. It really allows hospitals to have index on site before they pay part, but that's that especially distributors underwrite that so to speak.

And.

And provide that that.

That service for the hospitals and I'll just mention one other thing that much demand standpoint, it's transparent that the way we look at stocking is how much inventory in the specialty distributors have in just between first and second quarter that stayed steady at about two weeks ago at demand that we think that will continue.

Great. Thanks for the additional color appreciate it.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Thats.

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.

Thank you for your continued interest in Portola had a great rescue 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.