News Column

PORTOLA PHARMACEUTICALS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 6, 2014

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2013.



Special note regarding forward-looking statements

This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "will," "would" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. OVERVIEW We are 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. Since our inception in 2003, we have advanced several innovative compounds into clinical development. Our two lead programs address significant unmet medical needs in the area of thrombosis, or blood clots. Our lead compound Betrixaban is a novel oral once-daily inhibitor of Factor Xa in Phase 3 development for extended duration prophylaxis, or preventive treatment, of a form of thrombosis known as venous thromboembolism, or VTE, in acute medically ill patients for up to 35 days. Our second lead development candidate Andexanet alfa, an FDA-designated breakthrough therapy, is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Andexanet alfa is currently being evaluated in Phase 3 clinical trials. Our third product candidate, Cerdulatinib, formerly PRT2070, is an orally available kinase inhibitor that inhibits spleen tyrosine kinase, or Syk, and janus kinases, or JAK, enzymes that regulate important signaling pathways and is being developed for hematologic, or blood, cancers and inflammatory disorders. We are currently in a Phase 1/2 proof-of-concept study for Cerdulatinib in patients with non-Hodgkin's lymphoma, or NHL, or chronic lymphocytic leukemia, or CLL, who have failed or relapsed on existing marketed therapies or products in development, including patients with identified mutations. Our fourth program of highly selective Syk inhibitors is partnered with Biogen Idec Inc., or Biogen.



Our product candidates and collaboration agreements

Betrixaban

Betrixaban is a novel oral once-daily inhibitor of Factor Xa in development for extended duration VTE prophylaxis in acute medically ill patients for in-hospital and post discharge for up to 35 days. Acute medically ill patients are those who are hospitalized for serious non-surgical conditions, such as heart failure, stroke, infection, rheumatic disorders and pulmonary disorders. In March 2012, we initiated our pivotal biomarker-based Phase 3 APEX study, a randomized, double-blind, active-controlled, multicenter, multinational study to evaluate a once-daily dose of Betrixaban for a total of 35 days for superiority as compared to in-hospital administration of enoxaparin once daily for 6 to 14 days followed by placebo. Our APEX study is nearly 50% enrolled with over 475 active clinical trial sites in 32 countries worldwide. We believe that Betrixaban has several clinically important pharmacological properties that differentiate it from injectable enoxaparin and other oral Factor Xa inhibitors, including low renal clearance, a metabolic profile that limits drug-drug interaction, and a long half-life. Based on current enrollment, we expect our current Phase 3 study of Betrixaban, or APEX, to complete patient enrollment by the end of 2015. In January 2013, we entered into a clinical collaboration agreement with Lee's Pharmaceutical (HK) Ltd, or Lee's, to jointly expand the Phase 3 APEX study of Betrixaban into China with an exclusive option for Lee's to negotiate for the exclusive commercial rights to Betrixaban in China. 18 --------------------------------------------------------------------------------



Andexanet alfa

Andexanet alfa, an FDA-designated breakthrough therapy, is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Currently, there is no antidote or reversal agent approved for use against Factor Xa inhibitors. We completed two Phase 2 proof-of-concept studies of Andexanet alfa in healthy volunteers who were administered a Factor Xa inhibitor Eliquis® (apixaban) manufactured by Bristol-Myers Squibb, or BMS, and Pfizer Inc., or Pfizer, and XARELTO® (rivaroxaban) manufactured by Bayer Pharma AG, or Bayer, and Janssen Pharmaceuticals, Inc., or Janssen. We completed a Phase 2 proof-of-concept study evaluating Andexanet alfa as a reversal agent for enoxaparin, a low molecular weight heparin and our Phase 2 proof-of-concept study to evaluate Andexanet alfa as a reversal agent for edoxaban, manufactured by Daiichi Sankyo, Inc., or Daiichi Sankyo, is ongoing. Andexanet alfa is the first therapy to demonstrate reversal of a Factor Xa inhibitor in a clinical study. We have initiated three Phase 3 studies, one study is with BMS and Pfizer's Factor Xa inhibitor, Eliquis®, which was initiated in the first quarter of 2014, one study is with Bayer and Janssen's Factor Xa inhibitor, XARELTO®, which was initiated in the second quarter of 2014 and one study is with Daiichi Sankyo's Factor Xa inhibitor, edoxaban, which will be initiated in the third quarter of 2014. Our current Phase 2 and Phase 3 studies are using clinical material from CMC Biologics. In anticipation of a potential Biologics License Application, or BLA, filing and subsequent commercialization, we signed an agreement in June 2013 with Lonza Group Ltd, or Lonza, to develop a large-scale manufacturing process for Andexanet alfa. Following an assessment of ongoing manufacturing activities at CMC Biologics and Lonza, we have modified our plans for commercial launch. We made a strategic decision to continue and expand our ongoing work with CMC Biologics from clinical supply to commercial supply for a potential BLA filing and U.S. launch within our original timelines. In July 2014,we entered into a commercial supply agreement with CMC Biologics to increase their production capacity at a lower cost than that of our current clinical supply for Andexanet alfa. Total fixed commitments under the agreement for the purchases of clinical and commercial batches, not taking into account possible price and batch adjustments, are $294 million over the life of the agreement from 2015 through 2021. We have also committed to $15 million worth of pre-validation and validation work pending the execution of applicable work orders. Our original plan to increase capacity and enhance the manufacturing process at Lonza to support broader worldwide supply following our potential BLA filing, remains the same. In January 2014, we entered into a collaboration agreement with BMS and Pfizer to further study Andexanet alfa as a reversal agent for their jointly owned product candidate apixaban through Phase 3 studies. We initiated Phase 3 studies in the first quarter of 2014. Under the terms of the agreement, we received an upfront payment of $13.0 million, subject to a 50% refund provision, and are eligible to receive additional development and regulatory milestone and contingent payments of up to $12.0 million, subject to a 50% refund provision. These payments represent the total consideration under this agreement. BMS and Pfizer will continue to provide development and regulatory guidance for the program. Under both agreements with BMS and Pfizer, we retain full, worldwide development and commercial rights to Andexanet alfa. This Phase 3 collaboration agreement will continue in force until the approval of Andexanet alfa as a reversal agent for apixaban by the FDA and EMA. BMS and Pfizer may terminate this agreement for convenience with 60 days' advance written notice or for our bankruptcy or change of control. In addition, either party may terminate this agreement for the other party's uncured material breach, material safety issues, or failure of the Phase 3 studies. In February 2014, we entered into a second collaboration agreement with Bayer and Janssen to evaluate Andexanet alfa as a reversal agent for the FDA-approved oral Factor Xa inhibitor rivaroxaban through Phase 3 studies. Our original collaboration agreement with Bayer and Janssen covers the conduct of a Phase 2 proof-of-concept study. The new collaboration agreement covers the conduct of Phase 3 studies of Andexanet alfa with rivaroxaban and any potential U.S. and EU regulatory approval of Andexanet alfa as reversal agent of rivaroxaban. The Phase 3 studies are currently ongoing. Under this new collaboration agreement, we received an upfront payment of $10.0 million and are eligible to receive additional development and regulatory milestone payments of up to $15.0 million. These payments represent the total consideration under this agreement. Bayer and Janssen will continue to provide development and regulatory guidance for the program. Under both agreements with Bayer and Janssen, we retain full, worldwide development and commercial rights to Andexanet alfa. This Phase 3 collaboration agreement will continue in force until the approval of Andexanet alfa as a reversal agent for rivaroxaban by the FDA and EMA. Bayer and Janssen may terminate this agreement for convenience with 60 days' advance written notice or for our bankruptcy or change of control. In addition, either party may terminate this agreement for the other party's uncured material breach or material safety issues, or we can also terminate this agreement for failure of the Phase 3 studies. In July 2014, we entered into a collaboration agreement with Daiichi Sankyo to include subjects dosed with edoxaban, their Factor Xa inhibitor product, in one of our Phase 3 studies of Andexanet alfa. We are responsible for the cost of conducting this clinical study. Daiichi Sankyo will work closely with us on both development and regulatory aspects of Andexanet alfa in connection with our Phase 3 study to the extent such matters relate to edoxaban. Pursuant to our agreement with Daiichi Sankyo we are obligated to provide research and development and regulatory approval services and participate on various committees. Under this collaboration agreement, we will receive an upfront payment of $15.0 million and are eligible to receive additional payments up to $25.0 million due upon the achievement of certain milestones associated with the progress of our Phase 3 study. 19 --------------------------------------------------------------------------------



Cerdulatinib (formerly PRT2070)

In addition to our thrombosis products, we have discovered two novel orally available kinase inhibitors to treat hematologic disorders and inflammation. The first, Cerdulatinib, is an orally available, potent inhibitor of enzymes that regulate two important signaling pathways, spleen tyrosine kinase, or Syk, and janus kinase. We are developing Cerdulatinib for the treatment of certain B-cell hematologic cancers. We are currently in a Phase 1/2 proof-of-concept study with Cerdulatinib in non-Hodgkin's lymphoma and chronic lymphocytic leukemia.



Selective Syk inhibitors

Syk is an important mediator of immune response in a number of different types of immune cells. Our selective Syk inhibitors have been successfully evaluated in 131 subjects in several Phase 1 clinical studies. Biogen Idec Inc., or Biogen Idec, is leading the pre-clinical study of selective Syk inhibitors for allergic asthma and other inflammatory disorders and is responsible for all development-related expenses. In October 2011, we entered into an exclusive, worldwide license and collaboration agreement with Biogen Idec to develop and commercialize selective Syk kinase inhibitors for the treatment of autoimmune and inflammatory diseases. Under this agreement, Biogen Idec is responsible for all development-related expenses. In April 2014, we entered into an amendment to the Biogen Idec license and collaboration agreement under which Biogen Idec released to us one of the Syk kinase inhibitors for use in topical ophthalmic indications. For purposes of this discussion and analysis of our financial condition and results of operations, we refer to our agreements with Millennium Pharmaceuticals, Inc., Merck & Co. Inc., or Merck, Lee's, BMS and Pfizer, Bayer and Janssen, Daiichi Sankyo, Aciex Therapeutics, Inc., or Aciex, Biogen Idec, Astellas Pharma, Inc., or Astellas, and Novartis Pharma A.G., or Novartis, collectively as our collaboration agreements.



Financial operations overview

Revenue

Our revenue to date has been generated primarily from collaboration and license revenue pursuant to our collaboration agreements. We have not generated any revenue from commercial product sales to date. Since inception, in connection with our agreements with Novartis, Merck, Biogen Idec, , BMS and Pfizer, Bayer and Janssen, Lee's and Daiichi, we have received payments in the aggregate amount of $201.7 million, as initial upfront payments, contingent consideration and a milestone payment of which $6.5 million is subject to a 50% refund provision, pursuant to our Phase 3 clinical collaboration agreement with BMS and Pfizer. We may also be entitled to additional milestone payments and other contingent payments upon the occurrence of specific events. Due to the nature of these collaboration agreements and the nonlinearity of the earnings process associated with certain payments and milestones, we expect that our revenue will continue to fluctuate in future periods.



The following table summarizes the sources of our revenue, in thousands:

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Bayer and Janssen $ 1,194$ 1,318$ 2,106$ 2,438 BMS and Pfizer 503 1,106 945 3,094 Daiichi Sankyo 655 125 1,610 125 Lee's Pharmaceutical 63 52 125 52



Total collaboration and license revenue $ 2,415$ 2,601

$ 4,786$ 5,709

Research and development expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our unpartnered product candidates, as well as discovery and development of clinical candidates pursuant to our collaboration agreements. We recognize all research and development costs as they are incurred. Our research and development expenses may increase or decrease by amounts we may pay or receive under various cost-sharing provisions of our collaboration and license agreements. 20

-------------------------------------------------------------------------------- We expect our research and development expenses to increase as we continue to advance our product candidates through clinical development. We intend to identify partnerships to further develop other product candidates that strengthen our pipeline, which may offset a portion of our research and development expenses through reimbursement from these partners. In addition, if any of our product candidates receive regulatory approval for commercial sale, we expect to incur significant expenses associated with the establishment of a hospital-based sales force in the United States and possibly other major markets. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of expenses incurred or when, or if, we will be able to achieve sustained profitability. The following table summarizes our research and development expenses incurred by product candidate: Phase of Three months ended June 30, Six months ended June 30, development 2014 2013 2014 2013 (in thousands) (in thousands) Product candidate (unaudited) (unaudited) Betrixaban Phase 3 $ 16,413$ 11,947$ 31,324$ 22,697 Andexanet alfa Phase 2/3 10,760 7,997 22,759 13,777 Cerdulatinib Phase 1/2 1,575 1,114 2,647 2,145 Syk selective inhibitor Pre-clinical (52 ) (235 ) (63 ) (206 ) Elinogrel(1) Phase 3 ready 2 10 2 46 Other research and development expenses(2) 285 - 468 97 Total research and development expenses(3) $ 28,983$ 20,833$ 57,138$ 38,556



(1) We currently are not developing Elinogrel but may resume development in the future.

(2) Amounts in all periods include costs for other potential product candidates.

(3) Our research and development expenses have been reduced by reimbursements of certain research and development expenses pursuant to the cost-sharing provisions of our agreements with Biogen Idec commencing in the fourth quarter of 2011 and MyoKardia, Inc. and Global Blood Therapeutics, Inc. commencing in the fourth quarter of 2012. The program-specific expenses summarized in the table above include costs directly attributable to our product candidates. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. We expect our research and development expenses to increase in the future. The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming. We consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each product candidate and clinical program may be affected by a variety of factors including: the quality of the product candidate, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Furthermore, in the past we have entered into collaborations with third parties to participate in the development and commercialization of our product candidates, and we may enter into additional collaborations in the future. In situations in which third parties have control over the preclinical development or clinical study process for a product candidate, the estimated completion dates are largely under the control of such third parties and not under our control. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.



General and administrative expenses

General and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. We expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and those of The NASDAQ Global Market, additional insurance expenses, investor relations activities and other administration and professional services. 21 --------------------------------------------------------------------------------



Interest and other income (expense), net

Interest and other income (expense), net consists primarily of interest received on our cash, cash equivalents and investments, unrealized gains and losses from the remeasurement of our foreign currency bank balances and foreign currency forward contracts and gains and losses resulting from the remeasurement of our convertible preferred stock warrant liability. We recorded adjustments to the estimated fair value of the convertible preferred stock warrants until they were converted into warrants to purchase shares of our common stock upon the closing of our initial public offering, or IPO. At that time, we reclassified the convertible preferred stock warrant liability to additional paid-in capital and we will no longer record any related periodic fair value adjustments.



Critical accounting policies and significant judgments and estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three and six months ended June 30, 2014, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. Results of operations



Comparison of the three and six months ended June 30, 2014 and 2013

Revenue Three Months Ended June 30, Increase / % Increase / Six Months Ended June 30, Increase / % Increase / 2014 2013 (Decrease) (Decrease) 2014 2013 (Decrease) (Decrease)



(dollars in thousands)

(unaudited) Collaboration and license revenue 2,415 2,601 (186 ) (7 %) 4,786 5,709 (923 ) (16 %) The decrease in collaboration and license revenue during the three months ended June 30, 2014 was due to the decrease in revenue with respect to our BMS and Pfizer Phase 2 agreement of $1.1 million which was completed in December 2013 and our Bayer and Janssen Phase 2 agreement of $0.9 million which is expected to be completed in the fourth quarter of 2014. This decrease in revenue was partially offset by an increase in revenue from our BMS and Pfizer Phase 3 agreement of $0.5 million which we entered into in January of 2014, Bayer and Janssen Phase 3 agreement of $0.8 million, which we entered into in February of 2014, and Daiichi Sankyo Phase 2 agreement of $0.5 million, which we entered into in the second quarter of 2013. The decrease in collaboration and license revenue during the six months ended June 30, 2014 was due to the decrease in revenue with respect to our BMS and Pfizer Phase 2 agreement of $3.1 million which was completed in December 2013 and our Bayer and Janssen Phase 2 agreement of $1.6 million which is expected to be completed in the fourth quarter of 2014. This decrease in revenue was partially offset by an increase in revenue from our BMS and Pfizer Phase 3 agreement of $0.7 million which we entered into in January of 2014, Bayer and Janssen Phase 3 agreement of $1.3 million, which we entered into in February of 2014, and Daiichi Sankyo Phase 2 agreement of $1.5 million, which we entered into in the second quarter of 2013. In January 2014, we entered into a three-way agreement with BMS and Pfizer to study the safety and efficacy of Andexanet alfa as a reversal agent to their oral Factor Xa inhibitor, apixaban, in our Phase 3 studies. We are responsible for the cost of conducting this clinical study. Pursuant to our agreement with BMS and Pfizer we are obligated to provide research and development services and participate in the JCC in exchange for an upfront fee of $13.0 million, subject to a 50% refund provision, and up to $12.0 million of contingent and milestones, subject to a 50% refund provision, payable upon achievement of certain development and regulatory events. 22 -------------------------------------------------------------------------------- In February 2014, we entered into a three-way agreement with Bayer and Janssen to study the safety and efficacy of Andexanet alfa as a reversal agent to their oral Factor Xa inhibitor, rivaroxaban, in our Phase 3 studies. We are responsible for the cost of conducting this clinical study. Pursuant to our agreement with Bayer and Janssen we are obligated to provide research and development services and to participate in the JCC in exchange for an upfront fee of $10.0 million and up to $15.0 million of milestones payable upon achievement of certain development and regulatory events. Pursuant to our Phase 2 agreement with BMS and Pfizer, we are obligated to provide research and development services and participate on various committees. The total consideration under this agreement of $6.0 million was recognized as revenue on a straight-line basis over the estimated performance period through the fourth quarter of 2013. Pursuant to our Phase 2 agreement with Bayer and Janssen, we are obligated to participate on a JCC with Bayer and Janssen to oversee the collaboration activities under the agreement. We originally estimated the period of performance of our obligations to extend through the fourth quarter of 2013. During 2013, we added more cohorts than originally planned as part of the original study design at the inception of our agreement and therefore adjusted our period of performance to be through the fourth quarter of 2014. The total consideration under this agreement of $5.5 million is being recognized as revenue on a straight-line basis over the estimated performance period through the fourth quarter of 2014. Pursuant to our Phase 2 agreement with Daiichi Sankyo, we are obligated to perform preclinical proof-of-concept studies and participate on a JCC with Daiichi Sankyo to oversee the collaboration activities under the agreement. The total consideration under this agreement is $6.0 million, which includes contingent consideration of $3.0 million and non-contingent consideration of $3.0 million. The total non-contingent consideration under this agreement of $3.0 million was fully recognized as revenue on a straight-line basis over the estimated non-contingent performance period through the first quarter 2014. The recognition of contingent consideration under this agreement of $3.0 million commenced upon resolution of the contingency in the first quarter 2014 and is being recognized over the remaining estimated performance period, through the first quarter of 2015. In July 2014, we entered into a clinical collaboration agreement with Daiichi Sankyo to include subjects dosed with edoxaban, their Factor Xa inhibitor product, in one of our Phase 3 studies of Andexanet alfa. We are responsible for the cost of conducting this clinical study. Daiichi Sankyo will work closely with us on both development and regulatory aspects of Andexanet alfa in connection with our Phase 3 study to the extent such matters relate to edoxaban. Pursuant to our Phase 3 agreement with Daiichi Sankyo we are obligated to provide research and development services and participates on various committees. Under this collaboration agreement, we will receive an upfront payment of $15.0 million and are eligible to receive additional payments up to $25.0 million due upon the achievement of certain milestones associated with the progress of our Phase 3 study.



We expect revenue recognized in future periods, until we achieve product commercialization, to fluctuate as we recognize revenue related to our existing collaboration agreements and enter into new collaboration agreements.

Research and development expenses

Three Months Ended June 30, Increase / % Increase / Six Months Ended June 30, Increase / % Increase / 2014 2013 (Decrease) (Decrease) 2014 2013 (Decrease) (Decrease) (dollars in thousands) (unaudited) Research and development expenses 28,983 20,833 8,150 39 % 57,138 38,556 18,582 48 %



The increase in research and development expenses during the three months ended June 30, 2014 was primarily due to the following:

- increased program costs of $4.5 million to advance Betrixaban;

- increased program costs of $2.8 million to advance Andexanet alfa; and

· increased program costs of $0.5 million to advance Cerdulatinib.

The increase in research and development expenses during the six months ended June 30, 2014 was primarily due to the following:

- increased program costs of $8.6 million to advance Betrixaban;

- increased program costs of $9.0 million to advance Andexanet alfa; and

· increased program costs of $0.5 million to advance Cerdulatinib.

23 -------------------------------------------------------------------------------- We expect our research and development expenses to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs.



General and administrative expenses

Three Months Ended June 30, Increase / % Increase / Six Months Ended June 30, Increase / % Increase / 2014 2013 (Decrease) (Decrease) 2014 2013 (Decrease) (Decrease) (dollars in thousands) (unaudited)

General and administrative expenses 4,937 3,708 1,229 33 % 10,177 6,747 3,430 51 % The increase in general and administrative expenses during the three months ended June 30, 2014 was primarily related to increased headcount related costs including stock based compensation expense resulting from the increased value of the underlying stock options following our IPO in May 2013 of $0.5 million, higher professional and legal fees to support general corporate activities and business development of $0.5 million and increased costs associated with being a public company including directors and officer's insurance and director fees of $0.2 million. The increase in general and administrative expenses during the six months ended June 30, 2014 was primarily related to increased headcount related costs including stock based compensation expense resulting from the increased value of the underlying stock options following our IPO in May 2013 of $1.9 million, higher professional and legal fees to support general corporate activities and business development of $1.0 million and increased costs associated with being a public company including directors and officer's insurance and director fees of $0.5 million. We expect general and administrative expenses to increase in order for us to continue to support our growing business and the costs of being a public company including compliance with the Sarbanes Oxley Act of 2002.



Interest and other income (expense), net

Three Months Ended June 30, Increase / % Increase / Six Months Ended June 30, Increase / % Increase / 2014 2013 (Decrease) (Decrease) 2014 2013 (Decrease) (Decrease) (dollars in thousands) (unaudited) Interest and other income (expense), net 155 342 (187 ) (55 %) 453 (147 ) 600 (408 %) The decrease in interest and other income (expense), net during the three months ended June 30, 2014 was primarily due to foreign currency exchange losses of $0.1 million in the three months ended June 30, 2014 compared to foreign currency exchange gains of $0.3 million in the three months ended June 30, 2013. These gains and losses are primarily related to fluctuations in the Euro compared to the U.S. dollar and unrealized gains and losses related to our foreign currency forward contracts. This decrease was partially offset by an increase in interest income due to higher cash balances during the three months ended June 30, 2014. The increase in interest and other income (expense), net during the six months ended June 30, 2014 was primarily due to foreign currency exchange gains of $0.1 million in the six months ended June 30, 2014 compared to foreign currency exchange losses of $0.3 million in the six months ended June 30, 2013 and an increase in interest income due to higher cash balances during the six months ended June 30, 2014. 24

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Liquidity and capital resources

Due to our significant research and development expenditures, we have generated significant operating losses since our inception. We have funded our operations primarily through equity sales and payments from our collaboration partners. Our expenditures are primarily related to research and development activities. At June 30, 2014, we had available cash, cash equivalents and investments of $285.9 million. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including investments backed by U.S. government agencies, corporate debt securities and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk. On May 28, 2013, we closed our IPO, of 9,686,171 shares of our common stock, which included 1,263,413 shares of common stock issued pursuant to the over-allotment option granted to the underwriters. The public offering price of the shares sold in the offering was $14.50 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-187901), which was declared effective by the SEC on May 21, 2013. The total proceeds from the offering to us, net of underwriting discounts and commissions of approximately $9.4 million, were approximately $131.0 million. After deducting offering expenses payable by us of approximately $5.1 million, our net proceeds were approximately $125.8 million. As of June 30, 2014, no accrued offering costs remained unpaid. Upon the closing of the IPO, 24,026,797 shares of convertible preferred stock then outstanding automatically converted into 24,026,797 shares of our common stock. On October 22, 2013, we closed a follow-on public offering of 6,366,513 shares of our common stock, which included 4,457,710 shares issued and sold by us and 1,908,803 shares of common stock sold by certain existing stockholders of Portola. The public offering price of the shares sold in the offering was $23.75 per share. In addition, on November 14, 2013, the underwriters of the offering exercised their over-allotment option to purchase an additional 954,976 shares from us at the public offering price. The offer and sale of all of the shares in the offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-191609), which was declared effective by the SEC on October 16, 2013. The total proceeds from the offering to us including the over-allotment option, net of underwriting discounts and commissions of approximately $7.7 million, were approximately $120.8 million. After deducting offering expenses payable by us of approximately $0.9 million, our net proceeds were approximately $119.9 million. Since inception, in connection with our agreements with Novartis, Merck, Biogen Idec, BMS and Pfizer, Bayer and Janssen, Lee's, and Daiichi Sankyo we have received payments in the aggregate of $201.7 million, as initial upfront payments, contingent consideration and a milestone payment. In addition, we have received proceeds of $317.3 million from the sale of our convertible preferred stock.



The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30, Increase / % Increase / 2014 2013 (Decrease) (Decrease) (dollars in thousands) (unaudited) Cash used in operating activities (33,232 ) (29,327 ) (3,905 ) 13 % Cash used in investing activities (30,440 ) (40,393 ) 9,953 (25 %)



Cash provided by financing activities 2,967 128,353 (125,386 )

(98 %) Net increase (decrease) in cash (60,705 ) 58,633 (119,338 ) (204 %) 25

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Cash used in operating activities

Cash used in operating activities was $33.2 million for the six months ended June 30, 2014 reflecting a net loss of $62.1 million, which was decreased by non-cash charges of $4.7 million for stock-based compensation, $1.8 million for amortization of premium on investments and $0.7 million for depreciation and amortization. Cash used in operating activities also reflected an increase in net operating assets of $21.6 million primarily due to an increase in deferred revenue of $18.2 million related to upfront payments from BMS and Pfizer, subject to a 50% refund provision, and Bayer and Janssen in the six months ended June 30, 2014, partially offset by the recognition of collaboration revenue earned of $2.4 million from our collaboration agreements, increases in accounts payable and accrued and other liabilities of $4.3 million related to higher clinical study and related costs as we continue to increase our research and development activities. Cash used in operating activities also reflected an increase in prepaid expenses and other current assets of $1.3 million primarily reflecting recognition of clinical trial upfront fees upon contract execution of $0.3 million, withholding tax receivable on our Bayer collaboration payment of $0.7 million, interest receivable on our investment portfolio of $0.3 million, partially offset by a reduction in unrealized gains on our foreign currency forward contracts of $0.3 million in the six months ended June 30, 2014. Also reflected in cash used in operating activities is a decrease in accrued compensation and employee benefits of $0.3 million attributable to 2013 bonuses that were paid in the six months ended June 30, 2014. Cash used in operating activities was $29.3 million for the six months ended June 30, 2013 reflecting net loss of $39.7 million, which was decreased by non-cash charges of $1.9 million for stock-based compensation, $0.4 million for unrealized losses related to foreign currency forward contracts, $0.8 million for amortization of premium on investments and $0.7 million for depreciation and amortization. Cash used in operating activities also reflected an increase in net operating assets of $6.7 million primarily due to increases in accounts payable and accrued and other liabilities of $8.0 million related to higher clinical study and related costs as we continue to increase our research and development activities, an increase in deferred revenue of $3.0 million due to an increase in deferred revenue of $5.0 million related to the upfront payments received from Bayer and Janssen, $3.0 million related to the non-contingent receivable from Daiichi and $0.7 million related to the upfront payments received from Lee's in the six months ended June 30, 2013, partially offset by the recognition of collaboration revenue earned of $5.7 million from our collaboration agreements. Cash used in operating activities also reflected a decrease in prepaid expenses and other current assets of $0.9 million primarily reflecting payment and classification of deferred offering costs of $1.6 million, partially offset by higher prepaid corporate director's and officer's insurance of $0.5 million following the renewal of our corporate insurance program and placement of our public company policies and prepaid rent of $0.2 million in the six months ended June 30, 2013. Also reflected in cash used in operating activities is a decrease in accrued compensation and employee benefits of $0.2 million due to 2012 bonuses that were paid in the six months ended June 30, 2013 and an decrease in receivables from collaborations of $2.8 million due to upfront payments received from Bayer of $6.0 million partially offset by receivables due from Daiichi as of June 30, 2013 of $3.0 million pursuant to our agreement with Daiichi and research and development expenses reimbursable from Biogen Idec pursuant to our agreement with Biogen Idec.



Cash used in investing activities

Cash used in investing activities of $30.4 million for the six months ended June 30, 2014 was primarily related to purchases of investments of $143.5 million and capital equipment purchases of $1.0 million, partially offset by proceeds from sales of investments of $3.0 million and proceeds from maturities of investments of $111.0 million. Cash used in investing activities of $40.4 million for the six months ended June 30, 2013 was primarily related to purchases of investments of $98.6 million and capital equipment purchases of $0.3 million, partially offset by proceeds from sales of investments of $4.6 million and proceeds from maturities of investments of $53.9 million.



Cash provided by financing activities

Cash provided by financing activities of $3.0 million for the six months ended June 30, 2014, was related to proceeds from the exercise of stock options and proceeds from employee stock purchase program purchases. Cash provided by financing activities of $128.4 million for the six months ended June 30, 2013, was related to proceeds from our IPO, net of underwriting discounts and commissions of $131.0 million, partially offset by payments of deferred offering costs of $2.9 million. 26 -------------------------------------------------------------------------------- We believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected operating requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital other than potential milestones receivable under our current collaboration. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. Our future funding requirements will depend on many factors, including the following: - the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities; - the cost of manufacturing clinical supplies, and establishing commercial



supplies, of our product candidates and any products that we may develop,

including process improvements in order to manufacture Andexanet alfa at

commercial scale;

- the receipt of any collaboration payments;

- the number and characteristics of product candidates that we pursue;

- the cost, timing and outcomes of regulatory approvals;

- the cost and timing of establishing sales, marketing and distribution

capabilities;

- the terms and timing of any other collaborative, licensing and other

arrangements that we may establish;

- the timing, receipt and amount of sales, profit sharing or royalties, if any,

from our potential products;

- the cost of preparing, filing, prosecuting, defending and enforcing any

patent claims and other intellectual property rights; and

- the extent to which we acquire or invest in businesses, products or

technologies, although we currently have no commitments or agreements

relating to any of these types of transactions.

If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.



Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. Contractual obligations During the six months ended June 30, 2014, there have been no material changes outside the ordinary course of business in our specified contractual obligations as disclosed in our Annual Report for the year ended December 31, 2013 filed with the SEC. On July 1, 2014, we entered into a commercial supply agreement with CMC Biologics, pursuant to which CMC Biologics will manufacture clinical and commercial supply of Andexanet alfa and perform pre-validation and validation work on our behalf. Total fixed commitments under the agreement for the purchases of clinical and commercial batches, not taking into account possible price and batch adjustments, are $294.0 million over the life of the agreement from 2015 through 2021. We have also committed to $15.0 million worth of pre-validation and validation work pending the execution of applicable work orders. 27



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We may terminate the agreement unilaterally if we discontinue the development and commercialization of Andexanet alfa for regulatory, safety, efficacy or other commercial reasons, or if the projected market demand or gross margin of Andexanet alfa is below a minimum threshold, in which case we will be obligated to pay CMC Biologics a termination payment ranging from between $5.0 million and $30.0 million, depending on the time of termination.


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Source: Edgar Glimpses


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