10-Q 1 ptla-10q_20190331.htm 10-Q ptla-10q_20190331.htm

 

fso

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number: 001-35935

 

 

PORTOLA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

20-0216859

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

 

 

270 E. Grand Avenue

South San Francisco, California

94080

(Address of Principal Executive Offices)

(Zip Code)

(650) 246-7000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

PTLA

The Nasdaq Global Select Market

 

As of May 6, 2019, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 68,109,684.

 

 

 

 


 

PORTOLA PHARMACEUTICALS, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019

INDEX

 

 

 

 

Page

Part I —

 

Financial Information

 

 

 

 

Item 1. Financial Statements

F-1

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

F-1

 

 

 

Condensed Consolidated Statements of Operations (Unaudited)

F-2

 

 

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

F-3

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

F-4

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

F-5

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

F-6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

1

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

8

 

 

 

Item 4. Controls and Procedures

8

 

Part II —

 

Other Information

 

 

 

 

Item 1. Legal Proceedings

8

 

 

 

Item 1A. Risk Factors

9

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3. Defaults Upon Senior Securities

30

 

 

 

Item 4. Mine Safety Disclosures

30

 

 

 

Item 5. Other Information

30

 

 

 

Item 6. Exhibits

31

 

Signatures

33

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

PORTOLA PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data)

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

226,793

 

 

$

138,951

 

Short-term investments

 

 

96,048

 

 

 

178,013

 

Restricted cash

 

 

1,528

 

 

 

1,062

 

Trade and other receivables, net

 

 

11,787

 

 

 

5,849

 

Unbilled - collaboration and license revenue

 

 

6,317

 

 

 

9,880

 

Inventories

 

 

2,672

 

 

 

7,873

 

Prepaid and other current assets

 

 

9,713

 

 

 

11,699

 

Total current assets

 

 

354,858

 

 

 

353,327

 

Property and equipment, net

 

 

5,032

 

 

 

5,236

 

Intangible assets

 

 

7,137

 

 

 

7,279

 

Prepaid and other long-term assets

 

 

33,355

 

 

 

20,577

 

Total assets

 

$

400,382

 

 

$

386,419

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,748

 

 

$

13,215

 

Accrued research and development

 

 

18,376

 

 

 

19,831

 

Accrued and other liabilities

 

 

28,413

 

 

 

22,310

 

Deferred revenue, current portion

 

 

2,212

 

 

 

1,847

 

Current portion of notes payable and long term royalty-based debt

 

 

15,079

 

 

 

11,802

 

Total current liabilities

 

 

73,828

 

 

 

69,005

 

Notes payable, less current portion

 

 

46,860

 

 

 

48,298

 

Long term royalty-based debt, less current portion

 

 

156,926

 

 

 

155,256

 

Long term debt

 

 

56,839

 

 

 

 

Long term obligation to collaborator, less current portion

 

 

6,438

 

 

 

6,881

 

Deferred revenue, long-term less current portion

 

 

4,426

 

 

 

4,488

 

Other long-term liabilities

 

 

4,415

 

 

 

11,924

 

Total liabilities

 

 

349,732

 

 

 

295,852

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued

   and outstanding

 

 

 

 

Common stock, $0.001 par value, 150,000 shares authorized at March 31, 2019 and December 31, 2018; 67,977 shares and 66,618 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

70

 

 

 

68

 

Additional paid-in capital

 

 

1,652,292

 

 

 

1,614,320

 

Accumulated deficit

 

 

(1,603,860

)

 

 

(1,525,704

)

Accumulated other comprehensive loss

 

 

(80

)

 

 

(283

)

Total Portola stockholders’ equity

 

 

48,422

 

 

 

88,401

 

Noncontrolling interest

 

 

2,228

 

 

 

2,166

 

Total stockholders’ equity

 

 

50,650

 

 

 

90,567

 

Total liabilities and stockholders’ equity

 

$

400,382

 

 

$

386,419

 

 

 

Amounts include the assets and liabilities of SRX Cardio, LLC (“SRX Cardio”), a consolidated variable interest entity (“VIE”). Portola’s interests and obligations with respect to the VIE’s assets and liabilities are limited to those accorded to Portola in its agreement with the VIE. See Note 7, “Asset Acquisition and License Agreements”, to these condensed consolidated financial statements. See accompanying notes to the unaudited condensed consolidated financial statements.

F-1

 


 

PORTOLA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

Product revenue, net

 

$

20,362

 

 

$

606

 

Collaboration and license revenue

 

 

1,807

 

 

 

6,038

 

Total revenues

 

 

22,169

 

 

 

6,644

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

7,150

 

 

 

336

 

Research and development

 

 

35,584

 

 

 

60,067

 

Selling, general and administrative

 

 

53,034

 

 

 

31,541

 

Total operating expenses

 

 

95,768

 

 

 

91,944

 

Loss from operations

 

 

(73,599

)

 

 

(85,300

)

Interest and other income, net

 

 

1,984

 

 

 

3,371

 

Interest expense

 

 

(6,481

)

 

 

(2,581

)

Net loss

 

 

(78,096

)

 

 

(84,510

)

Net (income) loss attributable to noncontrolling interest

 

 

(60

)

 

 

332

 

Net loss attributable to Portola

 

$

(78,156

)

 

$

(84,178

)

Net loss per share attributable to Portola common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(1.17

)

 

$

(1.28

)

Shares used to compute net loss per share attributable to Portola common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

67,070,168

 

 

 

65,509,945

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

F-2

 


 

PORTOLA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

  

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(78,096

)

 

$

(84,510

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

203

 

 

 

(392

)

Comprehensive loss

 

 

(77,893

)

 

 

(84,902

)

Comprehensive (income) loss attributable to noncontrolling interest

 

 

(60

)

 

 

332

 

Total comprehensive loss attributable to Portola

 

$

(77,953

)

 

$

(84,570

)

 

See accompanying notes to the unaudited condensed consolidated financial statements.


F-3

 


 

PORTOLA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Noncontrolling

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balance at December 31, 2018

 

 

66,618

 

 

$

68

 

 

$

1,614,320

 

 

$

(1,525,704

)

 

$

(283

)

 

$

2,166

 

 

$

90,567

 

Issuance of common stock pursuant to equity award plans

 

 

1,359

 

 

 

2

 

 

 

25,660

 

 

 

 

 

 

 

 

 

 

 

 

25,662

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

12,312

 

 

 

 

 

 

 

 

 

 

 

 

12,312

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

203

 

 

 

 

 

 

203

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(78,156

)

 

 

 

 

 

60

 

 

 

(78,096

)

Change in noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Balance at March 31, 2019

 

 

67,977

 

 

$

70

 

 

$

1,652,292

 

 

$

(1,603,860

)

 

$

(80

)

 

$

2,228

 

 

$

50,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Noncontrolling

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balance at December 31, 2017

 

 

65,297

 

 

$

66

 

 

$

1,551,728

 

 

$

(1,204,519

)

 

$

(409

)

 

$

2,627

 

 

$

349,493

 

Adjustment to accumulated deficit due to adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

29,037

 

 

 

 

 

 

 

 

 

29,037

 

Issuance of common stock pursuant to equity award plans

 

 

514

 

 

 

1

 

 

 

5,678

 

 

 

 

 

 

 

 

 

 

 

 

5,679

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,980

 

 

 

 

 

 

 

 

 

 

 

 

10,980

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(392

)

 

 

 

 

 

(392

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(84,178

)

 

 

 

 

 

(332

)

 

 

(84,510

)

Change in noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119

)

 

 

(119

)

Balance at March 31, 2018

 

 

65,811

 

 

$

67

 

 

$

1,568,386

 

 

$

(1,259,660

)

 

$

(801

)

 

$

2,176

 

 

$

310,168

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

F-4

 


 

PORTOLA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(78,096

)

 

$

(84,510

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

792

 

 

 

756

 

Amortization of right-of-use asset

 

 

459

 

 

 

 

Accretion of discount on investment securities

 

 

(262

)

 

 

(491

)

Non-cash interest expense

 

 

6,481

 

 

 

2,581

 

Stock-based compensation expense, net of capitalized labor

 

 

17,894

 

 

 

10,980

 

Remeasurement gain on embedded derivatives liabilities

 

 

(472

)

 

 

(1,634

)

Provision for excess and obsolete inventories

 

 

3,945

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventories

 

 

1,498

 

 

 

(2,149

)

Trade and other receivables, net

 

 

(5,938

)

 

 

4,763

 

Unbilled - collaboration and license revenue

 

 

3,563

 

 

 

2,034

 

Prepaid expenses and other current assets

 

 

1,986

 

 

 

(11,244

)

Prepaid and other long-term assets

 

 

(11,042

)

 

 

4,797

 

Accounts payable

 

 

(4,489

)

 

 

11,469

 

Accrued research and development

 

 

(1,455

)

 

 

(22,868

)

Accrued and other liabilities

 

 

3,225

 

 

 

(4,324

)

Deferred revenue

 

 

303

 

 

 

1,650

 

Notes payable, long term royalty-based debt and long term obligation to collaborator

 

 

(2,027

)

 

 

 

Other long-term liabilities

 

 

 

 

 

(230

)

Net cash used in operating activities

 

 

(63,635

)

 

 

(88,420

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures, net

 

 

(327

)

 

 

(512

)

Purchases of investments

 

 

(41,708

)

 

 

(78,048

)

Proceeds from maturities of investments

 

 

124,138

 

 

 

148,141

 

Net cash provided by investing activities

 

 

82,103

 

 

 

69,581

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from debt issuance, net

 

 

59,203

 

 

 

 

Proceeds from issuance of common stock pursuant to equity award plans, net

 

 

10,637

 

 

 

5,678

 

Other

 

 

 

 

 

(119

)

Net cash provided by financing activities

 

 

69,840

 

 

 

5,559

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

88,308

 

 

 

(13,280

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

140,013

 

 

 

181,741

 

Cash, cash equivalents and restricted cash at end of period

 

$

228,321

 

 

$

168,461

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

F-5


 

PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization

Portola Pharmaceuticals, Inc.® (the “Company” or “we” or “our” or “us”) is a biopharmaceutical company focused on the development and commercialization of novel therapeutics in the areas of thrombosis, other hematologic diseases and inflammation for patients who currently have limited or no approved treatment options. We were incorporated in September 2003 in Delaware. Our headquarters and operations are located in South San Francisco, California and we operate in one segment.

We refer to our two approved drugs in this report as Andexxa and Bevyxxa. If approved outside of the United States, each drug may be marketed under different brand names. For example, Andexanet alfa received conditional approval under the brand name Ondexxya by the European Commission (“EC”) on April 26, 2019. In addition, an international nonproprietary name (“INN”) has been designated for each drug. Our previous INN for Andexxa was andexanet alfa; however, in the United States this INN has been replaced with “coagulation factor Xa (recombinant), inactivated-zhzo.” For the European Union (“EU”) and other parts of the world, andexanet alfa could remain the INN for Andexxa. Our use of Andexxa or Bevyxxa in this document in the context of continued development activities for which we have not yet received regulatory approval should not be read to imply that we have received regulatory approval for any indication or in any jurisdiction not reflected in our product labels.

 

2. Summary of Significant Accounting Policies

Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the amounts of Portola, its wholly-owned subsidiaries and a development partner that is a variable interest entity (a “VIE”) for which Portola is deemed, under applicable accounting guidance, to be the primary beneficiary as of March 31, 2019. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP has been condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of our financial information. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed on March 1, 2019 with the SEC.

The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any other future year. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our significant accounting policies and estimates. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

F-6


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Cash as Reported in Condensed Consolidated Statements of Cash Flows

Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and restricted cash. Restricted cash consists of cash restricted for royalty payments to HealthCare Royalty Partners and its Affiliates (“HCR”) and cash held by SRX Cardio, LLC (“SRX Cardio”). Cash as reported in the condensed consolidated statements of cash flows consists of the following (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

$

226,793

 

 

$

138,951

 

Restricted cash (SRX Cardio)

 

29

 

 

 

30

 

Restricted cash for royalty payments to HealthCare Royalty Partners and its affiliates ("HCR")

 

1,499

 

 

 

1,032

 

Total cash balance in condensed consolidated statements of cash flows

$

228,321

 

 

$

140,013

 

 

Customer Concentration

We have four Andexxa specialty distributor customers who each accounted for 10% or more of total net revenues during the three months ended March 31, 2019. We have three collaboration revenue customers who each accounted for less than 10% of total net revenues during the three months ended March 31, 2019. Each of these collaboration revenue customers accounted for more than 10% of total net revenues during the three months ended March 31, 2018.

Recent Accounting Pronouncements Adopted

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). This new standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted this new standard effective January 1, 2019 using the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit at the date of adoption and apply the new disclosure requirements beginning in the period of adoption. Our adoption of the standard added approximately $2.1 million in ROU assets and $3.3 million in lease liabilities to our condensed consolidated balance sheet upon adoption and did not significantly impact financial results.

 

The new standard provides a number of optional practical expedients and we elected the following:

 

 

Transition Elections. We elected the package of practical expedients that permits us to not reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also elected the practical expedient to not separate lease and non-lease components for facility lease classes of underlying assets to new or modified leases beginning on or after the adoption date. That is, we will account for each separate lease component of a contract and its associated non-lease components as a single lease component.

 

 

Ongoing Accounting Policy Elections. We elected the short-term lease recognition exemption whereby ROU assets and lease liabilities will not be recognized for leasing arrangements with terms less than one year.

F-7


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In June 2018, the FASB issued ASU No. 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU becomes effective in the first quarter of fiscal year 2019 and early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. Entities will apply this ASU by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. We adopted this new standard effective January 1, 2019. Adoption of this standard did not result in an adjustment to our beginning accumulated deficit upon the adoption, and did not significantly impact our financial results.

Recent Accounting Pronouncements Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU implements an impairment model, known as the current expected credit loss model that is based on expected losses rather than incurred losses. For trade receivables, entities will be required to estimate lifetime expected credit losses. This could result in the earlier recognition of credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than an other-than-temporary impairment that reduces the cost basis of the investment. Further, an entity will recognize any improvements in estimated credit losses immediately in earnings. Under the current guidance, a recovery of an impairment loss on an available-for-sale debt security is recognized prospectively as interest income. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are in the process of assessing the impact of ASU 2016-13 on our condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, this ASU requires a customer in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This ASU is effective for us for all interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are in the process of assessing the impact of ASU 2018-15 on our condensed consolidated financial statements.

 

 

3. Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following table presents our revenues, disaggregated by timing of transfer of goods or services (in thousands):

 

 

 

Three Months Ended March 31, 2019

 

 

 

Product Revenue, net

 

 

Collaboration and License Revenue

 

 

Total

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

 

 

 

 

    Transferred at a point in time

 

$

20,362

 

 

$

 

 

$

20,362

 

    Transferred over time

 

 

 

 

 

1,807

 

 

 

1,807

 

Total

 

$

20,362

 

 

$

1,807

 

 

$

22,169

 

F-8


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

 

The following table presents changes in our contract assets and liabilities for the three months ended March 31, 2019 (in thousands):

 

 

 

Balance at

Beginning of

Period

 

 

Addition

 

 

Deduction

 

 

Balance at End

of Period

 

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled - collaboration and license revenue

 

$

9,880

 

 

$

1,634

 

 

$

(5,197

)

 

$

6,317

 

Total contract assets

 

$

9,880

 

 

$

1,634

 

 

$

(5,197

)

 

$

6,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

6,335

 

 

$

1,112

 

 

$

(809

)

 

$

6,638

 

Total contract liabilities

 

$

6,335

 

 

$

1,112

 

 

$

(809

)

 

$

6,638

 

 

Significant changes in the contract liabilities balances during the period are as follows (in thousands):

 

 

 

 

 

 

 

Three Months

Ended as of

March 31, 2019

 

Revenue recognized according to the current period performance that was included in the contract liability at the beginning of the period

 

 

173

 

 

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2019 (in thousands):

 

Collaborator

 

Transaction Price

Allocated to the

Remaining

Performance

Obligation as of

March 31, 2019

 

 

Expected Year

By Which Revenue

Recognition Will

Be Completed

 

 

Percentage of

Revenue

Recognized

 

BMS and Pfizer - 2016 agreement

 

$

1,525

 

 

 

2021

 

 

 

88

%

Daiichi Sankyo - 2014 agreement

 

 

1,112

 

 

 

2020

 

 

 

97

%

Daiichi Sankyo - 2016 agreement

 

 

3,257

 

 

 

2023

 

 

 

79

%

Bayer - 2016 agreement

 

 

2,911

 

 

 

2023

 

 

 

81

%

Total

 

$

8,805

 

 

 

 

 

 

 

 

 

F-9


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

Milestone payments or refundable advance payments that are not considered probable of being achieved are excluded from the transaction price until they are probable.

Sales-based royalties, including milestone payments based on the level of sales, related to license arrangements are excluded from variable consideration and will be recognized at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Product Revenue, Net

To date, our source of product revenue has been from the U.S. sales of Andexxa and Bevyxxa, which we began shipping to customers in May 2018 and January 2018, respectively. No costs to obtain or fulfill the contracts have been capitalized. For the three month periods ended March 31, 2019, we recorded a total of $2.4 million as a reduction to revenue consisting primarily of distribution fees and reserves for chargebacks and returns.

Collaboration and License Revenue

BMS and Pfizer

Agreement Terms

In January 2014, we entered into an agreement with BMS and Pfizer to further study Andexxa as a reversal agent for their jointly-owned, U.S. Food and Drug Administration (“FDA”)-approved oral Factor Xa inhibitor, apixaban, through Phase 3 studies (the “2014 BMS and Pfizer Agreement”). We are responsible for the cost of conducting this clinical study.

In February 2016, we entered into a collaboration and license agreement with BMS and Pfizer whereby BMS and Pfizer obtained exclusive rights to develop and commercialize Andexxa in Japan (the “2016 BMS and Pfizer Agreement”). BMS and Pfizer are responsible for all development, regulatory and commercial activities in Japan and we will reimburse BMS and Pfizer for expenses they incur for research and development activities specific to Factor Xa inhibitors other than apixaban. Pursuant to this agreement, we are obligated to provide certain research and development activities outside of Japan, provide clinical drug supply and related manufacturing services and to participate on various committees in exchange for a non-refundable upfront fee of $15.0 million. We are also eligible to receive, contingent payments totaling up to $20.0 million which may be earned upon achievement of certain regulatory events and up to $70.0 million which may be earned upon achievement of specified annual net sales volumes in Japan. We are also entitled to receive royalties ranging from 5% to 15% on net sales of Andexxa in Japan.

Revenue Recognition

We assessed the 2014 BMS and Pfizer Agreement and the 2016 BMS and Pfizer Agreement in accordance with ASC 606 and concluded that BMS and Pfizer are customers.

For the 2014 BMS and Pfizer Agreement, we determined that the duration of the contract began on the effective date in January 2014 and ends upon Andexxa approval in United States and Europe, which we expected to be achieved in 2019. All the performance obligations under this agreement were delivered and we recognized all related revenues by the first quarter of 2019. For the three months ended March 31, 2019, we recognized less than $0.1 million as license and collaboration revenue under the 2014 BMS and Pfizer Agreement.

 

For the 2016 BMS and Pfizer Agreement, we determined that the duration of the contract begins on the effective date in February 2016 and ends upon estimated completion of the Andexxa Phase 4 expansion clinical trial in Japan.

 

We determined that the transaction price of the 2016 BMS and Pfizer Agreement was $12.9 million as of March 31, 2019 which includes routine updates for estimated costs that BMS and Pfizer will incur in developing Andexxa in Japan. In determining the transaction price, we evaluated all the payments to be received during the duration of the contract. As of March 31, 2019, the transaction price included $15.0 million of upfront payment, $5.0 million for acceptance of the Japan New Drug Application (“JNDA”) in Japan, as management expects it to be probable of achievement, $4.4 million of estimated variable consideration for cost-sharing payments from BMS and Pfizer for agreed upon research and development services for clinical trials outside of Japan, and $0.6

F-10


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

million for the estimated costs of Andexxa clinical supplies to BMS and Pfizer for Andexxa Phase 4 expansion clinical trial in Japan. Our transaction price is reduced by $12.1 million for estimated payments to be made to BMS and Pfizer for costs they will incur in developing Andexxa in Japan. Regulatory approval milestones were fully constrained and therefore are not included in the transaction price, as the receipts of such milestones are outside of our control. In determining whether to constrain other milestones, we considered numerous factors, including whether receipt of the milestones is within our control, contingent upon success in future clinical trials and/or the licensee’s efforts. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to BMS and Pfizer and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

For the three months ended March 31, 2019, we recognized $0.2 million as license and collaboration revenue under the 2016 BMS and Pfizer Agreement and recorded $5.5 million as deferred revenue under contract liabilities as of March 31, 2019 on the condensed consolidated balance sheets.

Daiichi Sankyo, Inc. (“Daiichi Sankyo”)

Agreement Terms

 

In July 2014, we entered into an agreement with Daiichi Sankyo to study the safety and efficacy of Andexxa as a reversal agent to edoxaban, in our Phase 3 and Phase 4 studies (the “2014 Daiichi Sankyo Agreement”). We are responsible for the cost of conducting these clinical studies. Pursuant to our agreement with Daiichi Sankyo we are obligated to provide research, development and regulatory services and to manufacture and supply Andexxa in exchange for an upfront nonrefundable fee of $15.0 million, up to two contingent payments totaling $5.0 million which are payable upon the initiation of our Phase 3 study and achievement of certain events associated with scaling up our manufacturing process to support a commercial launch, and up to four payments totaling $20.0 million which are payable upon acceptance of filing and regulatory approval of Andexxa as a reversal agent to edoxaban by the FDA and the European Medicines Agency (“EMA”).

 

In October 2016, we amended this agreement to expedite the expansion of our Phase 4 trial in exchange for an upfront fee of $15.0 million, $8.0 million of which is payable back to Daiichi Sanko based solely on quarterly royalty payments of 1% of world-wide net sales of Andexxa. We are also eligible to receive up to three contingent payments totaling $10.0 million payable upon achieving specified clinical site activation and patient enrollment targets. Additionally, the $2.5 million contingent payment associated with scaling up our manufacturing process from the original agreement has been removed by this amendment.

 

In March 2016, we entered into an agreement with Daiichi Sankyo to perform an ESS-Study of Japanese ethnicity, perform any further studies requested by the Japanese regulatory authorities and to deliver services in connection with our collaboration agreement to commercialize Andexxa in Japan with BMS and Pfizer (the “2016 Daiichi Sankyo Agreement”). Daiichi Sankyo will reimburse us for 33% of our costs and expenses incurred to conduct the ESS-Study and between 33% and 100% of costs and expenses we incur for other studies that involve edoxaban under the terms of the arrangement.

Revenue Recognition

We assessed the 2014 Daiichi Sankyo Agreement as amended in October 2016 and the 2016 Daiichi Sankyo Agreement in accordance with ASC 606 and concluded that Daiichi Sankyo is a customer.

 

For the 2014 Daiichi Sankyo Agreement, we determined that the duration of the contract begins on the effective date in July 2014 and ends upon Andexxa approval as a reversal agent to edoxaban in the United States and Europe, which we expect to be achieved in 2020. The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. We analyzed the impact of Daiichi Sankyo’s terminating the agreement prior to Andexxa approval and determined that there were substantive non-monetary penalties to Daiichi Sankyo for doing so. We considered quantitative and qualitative factors to reach this conclusion.

 

F-11


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

We determined that the transaction price of the 2014 Daiichi Sankyo Agreement and October 2016 amendment of this agreement was $34.0 million as of March 31, 2019. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of March 31, 2019, the transaction price included $22.0 million of upfront payments and $12.0 million in milestones already received upon achievement of specified events. As of March 31, 2019, we had $5.5 million of further milestone payments eligible to be included in the transaction price but have determined they are not probable of achievement and therefore constrained. As part of our evaluation of the constraint, we considered numerous factors, including whether receipt of the milestones is outside of our control and/or contingent upon success in a future clinical trial. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

For the three months ended March 31, 2019, we recognized $0.5 million as license and collaboration revenue under the combined 2014 Daiichi Sankyo Agreement and October 2016 amendment and recorded $1.1 million as deferred revenue under contract liabilities as of March 31, 2019 on the condensed consolidated balance sheets. There were no costs incurred to obtain or fulfill the contract.

 

For the 2016 Daiichi Sankyo Agreement, we determined that the transaction price of the 2016 Daiichi Sankyo Agreement was $15.5 million as of March 31, 2019 which includes routine updates for estimated reimbursable costs to be incurred in future periods. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of March 31, 2019, the transaction price included $5.0 million of upfront payment and $4.3 million of estimated variable consideration for cost-sharing payments from Daiichi Sankyo for agreed upon research and development services incurred and to be incurred outside of Japan including the ESS-study, and $6.2 million of estimated variable consideration for cost-sharing payments from Daiichi Sankyo associated with the development of Andexxa in Japan. As of March 31, 2019, we had $10.0 million of further regulatory milestone payments eligible for achievement, however, regulatory milestones have been fully constrained and thus are not included in the transaction price. In determining whether to constrain these milestones, we considered numerous factors, including whether receipt of the milestones is within our control and/or contingent upon success in future clinical trials. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

For the three months ended March 31, 2019, we recognized $0.6 million as license and collaboration revenue under the 2016 Daiichi Sankyo Agreement and recorded $3.0 million as Unbilled - collaboration and license revenue as of March 31, 2019 on the condensed consolidated balance sheets. None of the costs to obtain or fulfill the contract were capitalized.

Bayer Pharma, AG (“Bayer”) and Janssen Pharmaceuticals, Inc. (“Janssen”)

 

Agreement Terms

In January 2014, we entered into an agreement with Bayer and Janssen to study Andexxa as a reversal agent to rivaroxaban in our Phase 3 studies and to seek regulatory approval in the United States and Europe (the “2014 Bayer and Janssen Agreement”). We are responsible for the costs associated with this agreement.

Revenue Recognition

We assessed the 2014 Bayer and Janssen Agreement in accordance with ASC 606 and concluded that Bayer and Janssen are customers.

 

F-12


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

For the 2014 Bayer and Janssen Agreement, we determined that the duration of the contract begins on the effective date of the 2014 Bayer and Janssen Agreement and ends upon Andexxa approval in the United States and Europe for rivaroxaban, which was expected to be achieved in 2019. All the performance obligations under this agreement were delivered and we recognized all related revenues by the first quarter of 2019. For the three months ended March 31, 2019, we recognized less than $0.1 million as license and collaboration revenue under the 2014 Bayer and Janssen Agreement. None of the costs to obtain or fulfill the contract were capitalized.

Bayer Pharma, AG (“Bayer”)

Agreement Terms

 

In February 2016, we entered into an agreement with Bayer to perform an ESS-Study of Japanese ethnicity, perform any further studies requested by the Japanese regulatory authorities and to deliver services, in connection with our collaboration agreement to commercialize Andexxa in Japan with BMS and Pfizer (the “2016 Bayer Agreement”). Bayer will reimburse us 33% of our costs and expenses incurred to conduct the ESS-Study and between 33% and 100% of costs and expenses we incur for other studies that involve rivaroxaban under the terms of the arrangement.

 

We are obligated to provide research and development services, to provide clinical drug supply and related manufacturing services and to provide regulatory approval services in exchange for an upfront nonrefundable fee of $5.0 million. We are also eligible to receive, one payment of $10.0 million which is payable upon the initial regulatory approval for Andexxa for rivaroxaban in Japan.  The $10.0 million payment will be reduced to $7.0 million if Japanese regulatory approval is attained based only upon the ESS Study results.

Revenue Recognition

We assessed the 2016 Bayer Agreement in accordance with ASC 606 and concluded that Bayer is a customer.

 

We determined that the transaction price of the 2016 Bayer Agreement was $15.5 million as of March 31, 2019 which includes routine updates for estimated reimbursable costs to be incurred in future periods. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of March 31, 2019, the transaction price included a $5.0 million upfront payment, $4.3 million of estimated variable consideration for cost-sharing payments from Bayer for agreed upon research and development services incurred and to be incurred outside of Japan including the ESS-study and $6.2 million of estimated variable consideration for cost-sharing payments from Bayer associated with the development of Andexxa in Japan. As of March 31, 2019, we had $10.0 million of further regulatory milestone payments eligible for achievement, however, regulatory milestones have been fully constrained and thus are not included in the transaction price. In determining whether to constrain these milestones, we considered numerous factors, including whether receipt of the milestones is within our control and/or contingent upon success in future clinical trials. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

For the three months ended March 31, 2019, we recognized $0.5 million as license and collaboration revenue under the 2016 Bayer Agreement and recorded $3.3 million as Unbilled - collaboration and license revenue as of March 31, 2019 on the condensed consolidated balance sheets. There were no costs incurred to obtain or fulfill the contract.

 

 

4. Fair Value Measurements

 

Financial assets and liabilities are recorded at fair value. The carrying amounts of certain of our financial instruments, including cash and cash equivalents, restricted cash, short-term investments, receivables from collaborations, prepaid and other current assets, accounts payable, accrued research and development, accrued and other liabilities and deferred revenue and approximate their fair value due to their short maturities. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: 

 

Level 1 –Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

F-13


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Level 2 –Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 –Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In certain cases where there is limited activity or less transparency around inputs to valuation, the related assets or liabilities are classified as Level 3. Our embedded derivative liabilities are measured at fair value using a Monte Carlo simulation model or a discounted cash flow model and are included as a component of other long-term liabilities on the condensed consolidated balance sheets. The embedded derivative liabilities are subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of interest and other income, net, in our condensed consolidated statements of operations. The assumptions used in the Monte Carlo simulation model or the discounted cash flow model include: (1) our estimates of both the probability and timing of manufacturing regulatory approval of Andexxa and other related events; (2) the probability-weighted net sales of Andexxa; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the note. Our noncontrolling interest in SRX Cardio includes the fair value of the contingent milestone and royalty payments, which is valued based on Level 3 inputs. See Note 7, "Asset Acquisition and License Agreements", to these condensed consolidated financial statements for further information.

Our liability-classified Lonza AG (“Lonza”) award was measured at fair value using a Black-Scholes model until the settlement date during the first quarter of 2019. Change in the fair value of the liability-classified Lonza award was recognized as research and development expense in our condensed consolidated statements of operations. The assumptions used in the Black-Scholes model include: (1) expected risk free rate; (2) expected volatility; and (3) expected dividend yield rate. See Note 6, "Contract Manufacturing Agreements", to these condensed consolidated financial statements for further information.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Our noncontrolling interest in SRX Cardio includes the fair value of the contingent milestone and royalty payments, which is valued based on Level 3 inputs. See Note 7, “Asset Acquisition and License Agreements”, to these condensed consolidated financial statements for further information. 

F-14


PORTOLA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The following table sets forth the fair value of our financial assets and liabilities (excluding restricted cash) allocated into Level 1 and Level 2 that were measured on a recurring basis (in thousands): 

 

 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

Fair Value

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Hierarchy

 

Cost

 

 

Gain

 

 

(Loss)

 

 

Value

 

 

Cost

 

 

Gain

 

 

(Loss)

 

 

Value

 

Money market funds

 

Level 1

 

$

34,054

 

 

$

 

 

$

 

 

$

34,054

 

 

$

19,500

 

 

$

 

 

$

 

 

$

19,500

 

Corporate notes and commercial paper

 

Level 2

 

 

168,707

 

 

 

2

 

 

 

(77

)

 

 

168,632

 

 

 

166,363

 

 

 

1

 

 

 

(205

)

 

 

166,159

 

U.S. Treasury bills and government agency securities

 

Level 2

 

 

84,919

 

 

 

3

 

 

 

(9

)

 

 

84,913

 

 

 

110,270

 

 

 

1

 

 

 

(81

)

 

 

110,190

 

 

 

 

 

$

287,680

 

 

$

5

 

 

$

(86

)

 

$

287,599

 

 

$

296,133

 

 

$

2

 

 

$

(286

)

 

$

295,849

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

191,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

117,836

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96,048