Document



 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): March 8, 2018

PDL BioPharma, Inc.

(Exact name of Company as specified in its charter)

000-19756
(Commission File Number)

Delaware
 
94-3023969
(State or Other Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification No.)

932 Southwood Boulevard
Incline Village, Nevada 89451
(Address of principal executive offices, with zip code)

(775) 832-8500
(Company’s telephone number, including area code)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions:

¨    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.¨
 






Item 2.02 Results of Operations and Financial Condition.
 
On March 8, 2018, PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2017. A copy of this earnings release is furnished hereto as Exhibit 99.1. The Company will host an earnings call and webcast on March 8, 2018, during which the Company will discuss its financial results for the fourth quarter and year ended December 31, 2017.

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On March 8, 2018, the Company posted to its website a set of presentation materials that it will use during its earnings call and webcast to assist participants with understanding the Company’s financial results for the quarter and year ended December 31, 2017. A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On March 8, 2018, the Company distributed to analysts covering the Company’s securities a summary of certain information regarding the Company’s net income, recent transactions and licensed product development and sales (the Information Sheet) to assist those analysts in valuing the Company’s securities. The Information Sheet and its associated tables are attached hereto as Exhibit 99.3.
 
Limitation of Incorporation by Reference
 
In accordance with General Instruction B.2. of Form 8-K, the information in this report, including the exhibits, is furnished pursuant to Items 2.02 and 7.01 and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended or the Exchange Act.
 
Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished with this report:
Exhibit No.
 
Description
99.1
 
99.2
 
99.3
 

Cautionary Statements
 
This filing and its exhibits include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could impair the Company’s assets or business are disclosed in the “Risk Factors” contained in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2017, and subsequent quarterly report filings. All forward-looking statements are expressly qualified in their entirety by such factors. We do not undertake any duty to update any forward-looking statement except as required by law.






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PDL BIOPHARMA, INC.
(Company)
 
 
 
By:
 
/s/ Peter S. Garcia
 
 
Peter S. Garcia
 
 
Vice President and Chief Financial Officer
 
 



Dated: March 8, 2018






Exhibit Index
Exhibit No.
 
Description
99.1
 
99.2
 
99.3
 



Exhibit


Exhibit 99.1
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Contacts:
 
 
Peter Garcia
 
Jennifer Williams
PDL BioPharma, Inc.
 
Cook Williams Communications, Inc.
775-832-8500
 
360-668-3701
Peter.Garcia@pdl.com
 
jennifer@cwcomm.org

PDL BioPharma Announces Fourth Quarter and Year End 2017 Financial Results
Total Revenues Increased by 31% in 2017
GAAP EPS Increased 350% and 82% for Q417 and FY 2017, respectively

INCLINE VILLAGE, NV, March 8, 2018 – PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the fourth quarter and year ended December 31, 2017 including:
Total revenues of $68.0 million and $320.1 million for the three and twelve months ended December 31, 2017, respectively.
GAAP diluted EPS of $0.15 and $0.71 for the three and twelve months ended December 31, 2017, respectively.
GAAP net income attributable to PDL’s shareholders of $22.3 million and $110.7 million for the three and twelve months ended December 31, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $24.8 million and $100.7 million for the three and twelve months ended December 31, 2017. A full reconciliation of all components of the GAAP to non-GAAP financial results can be found in Table 3 at the end of the release.

“2017 was a great year for us and one where we experienced a 31 percent increase in revenue from the previous year,” stated John P. McLaughlin, chief executive officer of PDL. “Since 2012, we have built a rich portfolio of income generating assets and products to replace revenues from our expired Queen et al patents. We expect the revenues from these assets, whose net book value is $5.54 per share, to fuel the building of our specialty pharma business. It’s important to note that $264 million, or 83 percent of our 2017 revenues, came from sources other than the Queen et al patents. In 2018, we need to continue to execute successfully on our business model as well as close the gap between our share price and our book value per share.”

Revenue Highlights

Total revenues of $68.0 million for the three months ended December 31, 2017 included:
Royalties from PDL’s licensees to the Queen et al. patents of $4.5 million, which consisted of royalties earned on sales of Tysabri®;
Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of $30.1 million, which consisted of the change in estimated fair value of our royalty right assets, primarily related to Depomed, Inc. (Depomed) royalty asset;
Interest revenue from note receivable investment to CareView Communications of $0.8 million; and
Product revenues of $32.6 million, which consisted of $25.1 million from sales of Tekturna® and Tekturna HCT® in the United States, Rasilez® and Rasilez HCT® in the rest of the world (collectively, the Noden Products) and $7.5 million for product sales of the LENSAR® Laser System.
Total revenues increased by 2 percent for the three months ended December 31, 2017, when compared to the same period in 2016.
Royalties from PDL’s licensees to the Queen et al. patents were lower due to reduced sales of Tysabri that was manufactured prior to the patent expiry date;





PDL received $32.8 million in net cash royalties from its royalty rights in the fourth quarter of 2017, compared to $25.3 million for the same period of 2016. The increase in cash royalties is mainly due to a one-time settlement payment from Valeant related to the royalty audit of Glumetza and the launch of the authorized generic for Glumetza® sold by Valeant Pharmaceuticals International, Inc. PDL received royalties on the authorized generic equivalents under the same terms as the branded Glumetza;
The decrease in interest revenues was primarily due to the sale of the kaléo, Inc. note receivable in September 2017; and
The increase in product revenues were derived from the sale of the LENSAR Laser System, which PDL did not begin to recognize until May 2017.
Total revenues increased by 31 percent for the year ended December 31, 2017, when compared to the year ended December 31, 2016.
The decrease in royalties from PDL’s licensees to the Queen et al. patents is due to the expiration of the patent license agreement with Genentech, Inc. and reduced royalties on Tysabri.
The increase in royalty rights - change in fair value was primarily due to the year-to-date increase in fair value of the Depomed royalty asset by $134.1 million.
PDL received $107.3 million in net cash royalties, including a one-time settlement payment from Valeant related to the royalty audit of Glumetza, from its royalty rights in the year ended December 31, 2017, compared to $72.6 million for the same period of 2016.
The decrease in interest revenues was primarily due to the early repayment of the Paradigm Spine, LLC note receivable and the sale of the kaléo, Inc. note receivable.
Product revenue increased due to sales of the Noden Products, which PDL did not begin to recognize until the third quarter of 2016, and sales of the LENSAR Laser System, which PDL did not begin to recognize until May 2017.
License and other revenue increased by $19.6 million primarily due to a one-time $19.5 million payment from Merck as part of the previously announced settlement agreement to resolve the patent infringement lawsuit related to Keytruda®.

Operating Expense Highlights

Operating expenses were $38.2 million for the three months ended December 31, 2017, compared to $74.2 million for the same period of 2016. The decrease in operating expenses for the three months ended December 31, 2017, as compared to the same period in 2016, was primarily a result of the prior year period loss on extinguishment of Direct Flow Medical notes receivable, partially offset by the increase in operating expenses related to the acquisitions and operations of Noden and LENSAR, contributing an additional $13.8 million of cost of product revenue and $6.0 million in sales and marketing expenses due to an increase in Noden’s sales force.
Operating expenses were $126.3 million for the year ended December 31, 2017, compared to $114.9 million for the year ended December 31, 2016. The increase in operating expenses in 2017 was a result of the acquisitions and operations of Noden and LENSAR, contributing an additional $26.5 million of cost of product revenue, $12.7 million of intangible asset amortizations, $17.1 million in sales and marketing expenses, and $3.6 million in research and development costs for the completion of a pediatric trial for Tekturna. General administrative expenses increased by $5.9 million of which $7.5 million was related to Noden and $3.2 million was related to LENSAR, partially offset by a decrease of $51.1 million from the loss on extinguishment for the Direct Flow Medical notes receivable in 2016.

Recent Developments

On February 1, 2018, PDL completed the retirement of the remaining $126.4 million of aggregate principal of its 4.0% Convertible Senior Notes due 2018 at their stated maturity by making a payment to the noteholders of $126.4 million, plus $2.6 million of accrued interest.
In February 2018, we entered into a modification agreement with CareView whereby we agreed, effective as of December 28, 2017, to modify the credit agreement before remedies could otherwise have become available to us under the credit agreement in relation to certain obligations of CareView that would potentially not be met, including the requirement to make principal payments. Under the modification agreement we agreed that (i) a lower liquidity covenant would be applicable and (ii) principal repayment would be delayed for a period of up to December 31, 2018. In exchange for agreeing to these modifications, among other things, the exercise price of our warrants to purchase 4.4





million shares of common stock of CareView was reduced and, subject to the occurrence of certain events, CareView agreed to grant us additional equity interests.

Other Financial Highlights

PDL had cash, cash equivalents, short-term investments and other investments of $532.1 million at December 31, 2017, compared to $242.1 million at December 31, 2016.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results at 4:30 p.m. Eastern Time today, March 8, 2018.
 
To access the live conference call via phone, please dial (800) 668-4132 from the United States and Canada or (224) 357-2196 internationally. The conference ID is 9384627. Please dial in approximately 10 minutes prior to the start of the call. A telephone replay will be available beginning approximately one hour after the call through one week following the call, and may be accessed by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally. The replay passcode is 9384627.

To access the live and subsequently archived webcast of the conference call, go to the Company’s website at http://www.pdl.com and go to the Investor Relations section and select “Events & Presentations.” Please connect to the website at least 15 minutes prior to the call to allow for any software download that may be necessary.
 
About PDL BioPharma, Inc.

We seek to provide a significant return for our shareholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotech, pharmaceutical and medical device industries. In 2012, we began providing alternative sources of capital through royalty monetizations and debt facilities, and in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. To date, we have consummated seventeen of such transactions, of which nine are active and outstanding. We have one debt transaction outstanding, representing deployed and committed capital of $20.0 million: CareView Communications, Inc.; we have one hybrid royalty/debt transaction outstanding, representing deployed and committed capital of $44.0 million: Wellstat Diagnostics, LLC; and we have five royalty transactions outstanding, representing deployed and committed capital of $396.1 million and $397.1 million, respectively: KYBELLA®, AcelRx Pharmaceuticals, Inc. The Regents of the University of Michigan, Viscogliosi Brothers, LLC and Depomed, Inc. Our equity and loan investments in Noden Pharma DAC, Inc. and Noden Pharma USA, Inc. (together with their subsidiaries, “Noden”) represent deployed and committed capital of $179.0 million and $202.0 million, respectively, and our converted equity and loan investment in LENSAR, Inc. represents deployed capital of $40.0 million.

The Company operates in three segments designated as Income Generating Assets, Pharmaceutical and Medical Devices.

NOTE: PDL, PDL BioPharma, the PDL logo and the PDL BioPharma logo are trademarks or registered trademarks of, and are proprietary, to PDL BioPharma, Inc. which reserves all rights therein.

Forward-looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those, express or implied, in these forward-looking statements. Important factors that could impair the value of the Company’s assets and business, restrict or impede the ability of the Company to invest or acquire new products are disclosed in the risk factors contained in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, filed with the Securities and Exchange Commission on March





1, 2017. All forward-looking statements are expressly qualified in their entirety by such factors. We do not undertake any duty to update any forward-looking statement except as required by law.





TABLE 1
PDL BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME DATA
(In thousands, except per share amounts)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Royalties from Queen et al. patents
 
$
4,531

 
$
15,513

 
$
36,415

 
$
166,158

Royalty rights - change in fair value
 
30,103

 
28,068

 
162,327

 
16,196

Interest revenue
 
776

 
5,503

 
17,744

 
30,404

Product revenue, net
 
32,646

 
17,541

 
84,123

 
31,669

License and other
 
(20
)
 
(133
)
 
19,451

 
(126
)
Total revenues
 
68,036

 
66,492

 
320,060

 
244,301

 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
Cost of product revenue (excluding intangible amortization)
 
17,905

 
4,065

 
30,537

 
4,065

Amortization of intangible assets
 
6,251

 
6,014

 
24,689

 
12,028

General and administrative expenses
 
9,788

 
12,597

 
45,641

 
39,790

Sales and marketing
 
6,489

 
527

 
17,683

 
538

Research and development
 
729

 
1,887

 
7,381

 
3,820

Change in fair value of anniversary payment and contingent consideration
 
(3,000
)
 
(5,799
)
 
349

 
(3,716
)
Asset impairment
 

 
3,735

 

 
3,735

Acquisition-related costs
 

 
59

 

 
3,564

Loss on extinguishment of notes receivable
 

 
51,075

 

 
51,075

Total operating expenses
 
38,162

 
74,160

 
126,280

 
114,899

Operating income
 
29,874

 
(7,668
)
 
193,780

 
129,402

 
 
 
 
 
 
 
 
 
Non-operating expense, net
 
 
 
 
 
 
 
 
Interest and other income, net
 
933

 
184

 
1,659

 
588

Interest expense
 
(5,139
)
 
(4,743
)
 
(20,221
)
 
(18,267
)
Gain (loss) on bargain purchase
 
5,314

 
(2,353
)
 
9,309

 

Gain (loss) on extinguishment of debt
 

 

 

 
(2,353
)
Total non-operating expense, net
 
1,108

 
(6,912
)
 
(9,253
)
 
(20,032
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
30,982

 
(14,580
)
 
184,527

 
109,370

Income tax expense
 
8,646

 
(4,300
)
 
73,826

 
45,711

Net income
 
22,336

 
(10,280
)
 
110,701

 
63,659

Less: Net income/(loss) attributable to noncontrolling interests
 

 
56

 
(47
)
 
53

Net income attributable to PDL’s shareholders
 
$
22,336

 
$
(10,336
)
 
$
110,748

 
$
63,606

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
0.15

 
$
(0.06
)
 
$
0.71

 
$
0.39

Diluted
 
$
0.15

 
$
(0.06
)
 
$
0.71

 
$
0.39

 
 
 
 
 
 
 
 
 
Shares used to compute income per basic share
 
151,217

 
163,975

 
155,394

 
163,805

Shares used to compute income per diluted share
 
152,592

 
164,549

 
156,257

 
164,192

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$

 
$

 
$

 
$
0.10








TABLE 2
PDL BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Unaudited)
(In thousands)

 
 
December 31,
 
December 31,
 
 
2017
 
2016
Cash, cash equivalents and short-term investments
 
$
532,114

 
$
242,141

Total notes receivable
 
$
70,737

 
$
270,950

Total royalty rights - at fair value
 
$
349,223

 
$
402,318

Total assets
 
$
1,243,123

 
$
1,215,387

Total convertible notes payable
 
$
243,481

 
$
232,443

Total stockholders’ equity
 
$
845,890

 
$
755,423








TABLE 3
PDL BIOPHARMA, INC.
GAAP to NON-GAAP RECONCILIATION:
NET INCOME AND DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share amount)

A reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
22,336

 
$
(10,336
)
 
$
110,748

 
$
63,606

Adjustments to Non-GAAP net income (as detailed below)
 
2,445

 
1,716

 
(10,040
)
 
44,518

Non-GAAP net income attributed to PDL’s shareholders
 
$
24,781

 
$
(8,620
)
 
$
100,708

 
$
108,124

 
 
 
 
 
 
 
 
 
An itemized reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
22,336

 
$
(10,336
)
 
$
110,748

 
$
63,606

Adjustments:
 
 
 
 
 
 
 
 
Mark-to-market adjustment to fair value assets
 
(2,746
)
 
(2,726
)
 
(55,074
)
 
56,386

Non-cash interest revenues
 
(101
)
 
(121
)
 
(924
)
 
(2,864
)
Non-cash stock-based compensation expense
 
124

 
1,093

 
3,138

 
3,742

Non-cash debt offering costs
 
2,843

 
3,942

 
11,038

 
10,009

Mark-to-market adjustment on warrants held
 
20

 
31

 
49

 
906

Amortization of the intangible assets
 
6,251

 
6,014

 
24,689

 
12,028

Mark-to-market adjustment of anniversary payment and contingent consideration
 
(3,000
)
 
(5,799
)
 
349

 
(3,716
)
Income tax effect related to above items
 
(946
)
 
(718
)
 
6,695

 
(31,973
)
Total adjustments
 
2,445

 
1,716

 
(10,040
)
 
44,518

Non-GAAP net income
 
$
24,781

 
$
(8,620
)
 
$
100,708

 
$
108,124


Use of Non-GAAP Financial Measures

We supplement our consolidated financial statements presented on a GAAP basis by providing additional measures which may be considered “non-GAAP” financial measures under applicable SEC rules. We believe that the disclosure of these non-GAAP financial measures provides our investors with additional information that reflects the amounts and financial basis upon which our management assesses and operates our business. These non-GAAP financial measures are not in accordance with generally accepted accounting principles and should not be viewed in isolation or as a substitute for reported, or GAAP, net income, and diluted earnings per share, and are not a substitute for, or superior to, measures of financial performance performed in conformity with GAAP.

“Non-GAAP net income“ is not based on any standardized methodology prescribed by GAAP and represent GAAP net income adjusted to exclude (1) mark-to market adjustments related to the fair value election for our investments in royalty rights presented in our earnings, which include the fair value re-measurement of future discounted cash flows for each of the royalty rights assets we have acquired, (2) non-cash interest revenue from notes receivable (3) stock-based compensation expense, (4)





non-cash interest expense related to PDL debt offering costs, (5) mark-to market adjustments related to warrants held, (6) mark-to-market adjustment related to acquisition-related contingent considerations, (7) amortization of intangible assets, and to adjust (7) the related tax effect of all reconciling items within our reconciliation of our GAAP to Non-GAAP net income. Non-GAAP financial measures used by PDL may be calculated differently from, and therefore may not be comparable to, non-GAAP measures used by other companies.



Exhibit


Exhibit 99.2

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Exhibit

Exhibit 99.3

PDL BioPharma, Inc.
Q4 2017
March 8, 2018

Following are some of the key points regarding PDL’s fourth quarter and year-end 2017 financial and business results.

Highlighted Financial Results from Q4 2017
Total revenues of $68.0 million and $320.1 million for the three and 12 months ended December 31, 2017, respectively.
GAAP diluted EPS of $0.15 and $0.71 for the three and 12 months ended December 31, 2017, respectively.
GAAP net income attributable to PDL’s shareholders of $22.3 million and $110.7 million for the three and 12 months ended December 31, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $24.8 million and $100.7 million for the three and 12 months ended December 31, 2017.
PDL had cash, cash equivalents, short-term investments and other investments of $532.1 million at December 31, 2017, compared to $242.1 million at December 31, 2016.
PDL’s portfolio of assets has a net book value of $5.54 per share.

Recent Developments
On February 1, 2018, PDL completed the retirement of the remaining $126.4 million of aggregate principal of its 4.0% Convertible Senior Notes due 2018 at their stated maturity by making a payment to the noteholders of $126.4 million, plus $2.6 million of accrued interest.

Updates on royalty-bearing products relating to Queen et al. Patents

Tysabri® (Approved royalty-bearing product relating to Queen et al. patents)
While the Queen et al. patents have expired and the resulting royalty revenue has dropped substantially since the first quarter of 2016, we continue to receive royalty revenue from one product under the Queen et al. patent licenses, Tysabri®, as a result of sales of the product that was manufactured prior to patent expiry. In November 2017, we were notified by Biogen that product supply for Tysabri that was manufactured prior to patent expiry, and for which we would receive royalties on, had been extinguished in the United States and was rapidly being reduced in other countries. As a result, we anticipate royalties from product sales of Tysabri to be substantially lower in 2018 and cease after the first quarter of 2019.
PDL recorded revenue of $4.5 million from Tysabri® in Q4 2017.

Noden Pharma
Noden US is commercializing Tekturna® and Tekturna HCT® in the United States and Noden Pharma DAC, an Irish based company, is assuming commercialization responsibilities for Rasilez® and Rasilez HCT® in the rest of the world, starting in the second half of 2017. The products are indicated for the treatment of hypertension.
PDL owns 100 percent of Noden and continues to hold three of five board seats.
Noden and PDL are evaluating additional pharma products in the form of optimized, established medicines, to acquire for Noden.
Noden net revenue for the quarter ended December 31, 2017 was $25.1 million, with $14.5 million in US revenue and $10.6 million in the rest of world.
Gross margins on the US revenue in the fourth quarter were 79 percent.
The $10.6 million of revenue for the ex-U.S. includes one month of net of cost of goods and a fee to Novartis through its transition services agreement and two months of revenue which excludes the Novartis profit transfer since EU and Switerland marketing authorizations have been transferred to Noden as of November 1, 2017.
As a result, we will see higher revenues (as ex-US revenue were previously reported net of COGS and fees from Novartis), but we will also see an increase in reported cost of sales. Noden’s overall goal is to maximize profits generated from its portfolio, and this led us to de-register the products in those few European countries where

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PDL BioPharma, Inc.
Q4 2017
March 8, 2018


Rasilez was either not or only marginally profitable. Although this has had a negative impact on revenue, it has improved operating margins.
In December of 2017, Noden entered into an agreement with Lee’s Pharmaceutical Holdings Ltd. granting them exclusive sales rights to Rasilez in China, Hong Kong, Macau and Taiwan, with guaranteed payments due to Noden. We had not forecasted sales in these territories during our acquisition of Rasilez, so this agreement represents an incremental opportunity. Also in December, Noden entered into an agreement with Orphan Pacific for the distribution of Rasilez in Japan.

Updates on Income Generating Assets

Royalty Rights Assets

The following table provides additional details with respect to the fair value of the PDL royalty rights assets as of December 31, 2017 and with changes from December 31, 2016 as reflected in our Balance Sheet:
 
 
Fair Value as of
 
Change of
 
Royalty Rights -
 
Fair Value as of
(in thousands)
 
December 31, 2016
 
Ownership
 
Change in Fair Value
 
December 31, 2017
Depomed
 
$
164,070

 
$

 
$
67,968

 
$
232,038

VB
 
14,997

 

 
(617
)
 
14,380

U-M
 
35,386

 

 
(8,617
)
 
26,769

ARIAD
 
108,631

 
(108,169
)
 
(462
)
 

AcelRx
 
67,483

 

 
5,411

 
72,894

Avinger
 
1,638

 

 
(1,242
)
 
396

KYBELLA
 
10,113

 

 
(7,367
)
 
2,746

 
 
$
402,318

 
$
(108,169
)
 
$
55,074

 
$
349,223


The following table provides a summary of activity with respect to our royalty rights - change in fair value for the year ended December 31, 2017:
 
 
 
 
Change in
 
Royalty Rights -
(in thousands)
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
Depomed
 
$
97,644

 
$
67,968

 
$
165,612

VB
 
1,276

 
(617
)
 
659

U-M
 
3,662

 
(8,617
)
 
(4,955
)
ARIAD
 
3,081

 
(462
)
 
2,619

AcelRx
 
120

 
5,411

 
5,531

Avinger
 
1,220

 
(1,242
)
 
(22
)
KYBELLA
 
250

 
(7,367
)
 
(7,117
)
 
 
$
107,253

 
$
55,074

 
$
162,327


Updates on Royalty Rights Assets

Depomed, Inc. To date (through December 31, 2017), we have received cash royalty payments of $308.5 million of the $240.5 million investment.
Glumetza (and authorized generic version) royalty: 50% of net sales less COGS continues so long as the products are being commercialized.
On October 27, 2017, PDL and Depomed, Inc. entered into a settlement agreement with Valeant Pharmaceuticals International, Inc. to resolve all matters addressed in the lawsuit filed by Depomed on September 7, 2017 relating to underpayment of royalties by Valeant. Under the terms of the Settlement Agreement, the litigation will be dismissed, with prejudice, and Valeant paid a one-time, lump-sum payment of $13.0 million.  The cash from the settlement agreement was received in Q4 2017.
Low to mid-single digit royalties to PDL on new product approvals expected to continue to 2023 for Invokamet XR® and 2026 for Jentadueto XR® and Synjardy XR®.


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PDL BioPharma, Inc.
Q4 2017
March 8, 2018


Notes Receivable

The following table presents the fair value of assets and liabilities not subject to fair value recognition by level within the valuation hierarchy:
 
 
December 31, 2017
 
December 31, 2016
(In thousands)
 
Carrying Value
 
Fair Value
Level 3
 
Carrying Value
 
Fair Value
Level 3
Wellstat Diagnostics note receivable
 
$
50,191

 
$
51,308

 
$
50,191

 
$
52,260

Hyperion note receivable
1,200

1,200

 
1,200

 
1,200

 
1,200

LENSAR note receivable


 

 
43,909

 
43,900

Direct Flow Medical note receivable


 

 
10,000

 
10,000

kaléo note receivable


 

 
146,685

 
142,539

CareView note receivable
19,245

19,346

 
18,750

 
18,965

 
19,200

 
 
$
70,737

 
$
71,258

 
$
270,950

 
$
269,099


Updates on Notes Receivable

CareView
In February 2018, we entered into a modification agreement with CareView whereby we agreed, effective as of December 28, 2017, to modify the credit agreement before remedies could otherwise have become available to us under the credit agreement in relation to certain obligations of CareView that would potentially not be met, including the requirement to make principal payments. Under the modification agreement we agreed that (i) a lower liquidity covenant would be applicable and (ii) principal repayment would be delayed for a period of up to December 31, 2018. In exchange for agreeing to these modifications, among other things, the exercise price of our warrants to purchase 4.4 million shares of common stock of CareView was reduced and, subject to the occurrence of certain events, CareView agreed to grant us additional equity interests.

Wellstat Diagnostics, LLC
In NY court action commenced by PDL to collect from related entities who are guarantors of the loan, the judge ruled in favor of PDL. On appeal, the appellate division of the NY court reversed on procedural grounds the portion of the decision granting PDL summary judgment, remanding the case to the trial division for a plenary action. The action is currently before the NY trial court and in the pre-trial phase. The parties will have the opportunity to conduct discovery and file dispositive motions prior to trial. No trial date has been set yet.
In September 2017, Wellstat Therapeutics, one of the Wellstat Guarantors,  obtained a decision against BTG International, Inc. in a breach of contract case which set the damages at $55.8 million plus interest and fees.  Wellstat Therapeutics will only receive the award in a final court decision or settlement between the parties, and BTG has appealed the decision.
On February 6, 2018, the NY Court issued an order from the bench which enjoins the Wellstat Guarantors from selling, encumbering, removing, transferring or altering the collateral, and further precludes PDL from foreclosing on certain collateral during the pendency of the case. The Guarantors have not yet posted the required $300,000 bond to implement the injunction on PDL’s foreclosure.

Forward-looking Statements

This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those, express or implied, in these forward-looking statements. Important risks and uncertainties with respect to the Company's business are disclosed in the risk factors contained in the Company's Annual Report on Form 10-K, as updated by subsequent quarterly reports filed with the Securities and Exchange Commission, as updated by subsequent filings. All forward-looking statements are expressly qualified in their entirety by such factors. We do not undertake any duty to update any forward looking statement except as required by law.


Page 3

PDL BioPharma, Inc.
Q4 2017
March 8, 2018


Queen et al. Royalties
Royalty Revenue by Product ($ in 000's) *
Tysabri
Q1
Q2
Q3
Q4
Total
2017
14,156

16,284

1,443

4,531

36,414

2016
13,970

14,232

14,958

15,513

58,673

2015
14,385

13,614

13,557

14,031

55,587

2014
12,857

13,350

16,048

15,015

57,270

2013
12,965

13,616

11,622

12,100

50,304

2012
11,233

12,202

11,749

12,255

47,439

2011
9,891

10,796

11,588

11,450

43,725

2010
8,791

8,788

8,735

9,440

35,754

2009
6,656

7,050

7,642

8,564

29,912

2008
3,883

5,042

5,949

6,992

21,866

2007
839

1,611

2,084

2,836

7,370

2006



237

237

* As reported to PDL by its licensees. Totals may not sum due to rounding.



Queen et al. Sales Revenue
Reported Licensee Net Sales Revenue by Product ($ in 000's) *
Tysabri
Q1
Q2
Q3
Q4
Total
2017
471,877

398,382

194,563

177,379

1,242,201

2016
465,647

474,379

498,618

517,099

1,955,743

2015
479,526

453,786

451,898

467,735

1,852,945

2014
428,561

442,492

534,946

500,511

1,906,510

2013
434,677

451,358

387,407

403,334

1,676,776

2012
374,430

401,743

391,623

408,711

1,576,508

2011
329,696

356,876

388,758

381,618

1,456,948

2010
293,047

287,925

293,664

316,657

1,191,292

2009
221,854

229,993

257,240

285,481

994,569

2008
129,430

163,076

200,783

233,070

726,359

2007
30,468

48,715

71,972

94,521

245,675

2006



7,890

7,890

* As reported to PDL by its licensee. Dates in above charts reflect when PDL receives
royalties on sales. Sales occurred in the quarter prior to the dates in the above charts.
Totals may not sum due to rounding.
 


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