On Thursday, Portola Pharmaceuticals (PTLA) dropped almost 30% after the company’s Phase III study of extended-duration betrixaban failed to achieve primary endpoint in first cohort. The study was designed to assess the relative risk of the two therapies as measured by a composite endpoint of ultrasound-detected (asymptomatic) proximal deep venous thrombosis (DVT), symptomatic DVT, non-fatal pulmonary embolism (PE) or VTE-related death in high-risk acute medically ill patients treated with oral betrixaban for 35 - 47 days compared to standard-of-care- injectable enoxaparin for 6 - 14 days.

While the company believes the data was strong enough to support the full assessment in Cohort 2, the market thinks otherwise.[The stock dropped another 6% today.] However, the sell-off may have been an overreaction. PTLA shares have already seen a huge sell-off this year and looked significantly undervalued before Thursday’s drop. The betrixaban data is disappointing but in my opinion, the drug is not the key value driver for PTLA. In fact, betrixaban was only valued at $7.50 per share in my DCF model. While the addressable market for betrixaban is huge, it is crowded. Most of PTLA’s value will be driven by andexanet alfa, which has a PDUFA in August this year. Because of andexanet alfa’s potential, I am maintaining my Buy rating on PTLA and keeping the stock in the Conviction Buy list. However, I am reducing the price target on the stock to $65 to account for the betrixaban setback.

[Monday closing price: $19.01]