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): August 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 August 8, 2018, PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the second quarter ended June 30, 2018. A copy of this earnings release is furnished hereto as Exhibit 99.1. The Company will host an earnings call and webcast on August 8, 2018, during which the Company will discuss its financial results for the second quarter ended June 30, 2018.

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On August 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 ended June 30, 2018. A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On August 8, 2018, the Company distributed to analysts covering the Company’s securities a summary of certain information regarding the Company’s financial results and business (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 16, 2018 and 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.






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: August 8, 2018






Exhibit Index
Exhibit No.
 
Description
99.1
 
99.2
 
99.3
 



Exhibit


Exhibit 99.1
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Contacts:
 
 
Peter Garcia
 
Jody Cain
PDL BioPharma, Inc.
 
LHA Investor Relations
775-832-8500
 
310-691-7100
Peter.Garcia@pdl.com
 
jcain@lhai.com

PDL BioPharma Reports Second Quarter 2018 Financial Results

INCLINE VILLAGE, NV, (August 8, 2018) – PDL BioPharma, Inc. (“PDL” or the “Company”) (NASDAQ: PDLI) reports financial results for the three and six months ended June 30, 2018 including:

Second Quarter Financial Highlights

Total revenues of $46.6 million.
GAAP net loss attributable to PDL’s shareholders of $112.3 million or $(0.76) per share.
GAAP net loss includes a one-time $133.3 million, net of tax, non-cash accounting charge related to the impairment of an intangible asset from Noden Pharma DAC, due to the increased probability of a generic version of aliskiren being launched in the United States by Anchen, offset by a $19.7 million, net of tax, non-cash decrease in the fair value of the contingent liability related to a reduced estimate of the probability in paying milestones to Novartis for Tekturna®.
Non-GAAP net income attributable to PDL’s shareholders of $14.7 million. A reconciliation of GAAP to non-GAAP financial results can be found in Table 3 at the end of this news release.
Cash, cash equivalents, short-term investments and other investments of $395.7 million as of June 30, 2018.
Repurchased 6.8 million shares of common stock in the open market during the quarter for $19.4 million.

“Our financial results for the second quarter reflect higher product sales resulting from our change in strategy to equity and product investments, and we continue to have a strong cash balance to pursue acquisitions. While we are disappointed with the write down of the Noden asset, the impairment is not an indication of the performance of the business this quarter, but rather is based upon uncertainty in the future generic aliskiren competition in the United States,” said John P. McLaughlin, CEO of PDL.

“Last week we announced an amended agreement with Depomed to purchase Depomed’s remaining interests in future royalties for $20 million in a transaction we view as highly attractive to our shareholders,” he added. “While we are shifting our strategy away from royalty agreements, our familiarity with the Depomed assets and our past success with them supported this investment decision. We expect to begin realizing a return on this investment by late 2020 with meaningful cash returns expected through 2026.”

Revenue Highlights

Total revenues of $46.6 million for the three months ended June 30, 2018 included:
Product revenues of $31.8 million, which consisted of $25.9 million from sales of Tekturna® and Tekturna HCT® in the United States and Rasilez® and Rasilez HCT® in the rest of the world (collectively, the Noden Products), and $5.9 million for product sales of the LENSAR® Laser System;
Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of $12.8 million, which consisted of the change in estimated fair value of our royalty right assets, primarily related to the Depomed royalty asset;





Royalties from PDL’s licensees to the Queen et al. patents of $1.2 million, which consisted of royalties earned on sales of Tysabri®; and
Interest revenue from note receivable investment to CareView Communications of $0.8 million.

Total revenues for the second quarter of 2018 were $46.6 million, compared with $143.8 million for the second quarter of 2017, reflecting PDL’s strategic shift to a pharmaceutical business model and the decline in royalty income from the expired Queen et al. patents.
Product revenues were $31.8 million, a 69% increase from $18.8 million for the prior year due to sales of the Noden Products and the LENSAR Laser System, the latter of which PDL did not begin to recognize until May 2017. Product revenues accounted for 68% of total revenues compared with 13% in the second quarter of 2017;
Product revenues from Noden Products were $10.4 million in the U.S. and $15.5 million in the rest of the world.
PDL recognized $12.8 million in revenue from royalty rights - change in fair value, compared with $83.7 million in the prior-year period. The decrease was primarily due to a higher prior year royalty rights - change in fair value as a result of the increase in fair value of the Depomed, Inc. royalty asset in the second quarter of 2017 based upon revised future cash flows;
PDL received $19.4 million in net cash royalties from its royalty rights for the second quarter of 2018, compared with $34.6 million for the prior-year period. The decrease is mainly due to the launch of the authorized generic for Glumetza® in February 2017 sold by a subsidiary of Bausch Health Companies Inc. (formerly Valeant Pharmaceuticals International, Inc.) and included a retroactive payment in the second quarter of 2017;
Royalties from PDL’s licensees to the Queen et al. patents of $1.2 million, compared with $16.3 million for the second quarter of 2017 as product supply of Tysabri® manufactured prior to patent expiry in the U.S. have been extinguished and ex-U.S. product supplies are rapidly being depleted; and
Interest revenues decreased primarily due to the sale of the kaléo, Inc. note receivable in September 2017.

Total revenues for the six months ended June 30, 2018, were $85.1 million, compared with $189.3 million for the prior-year period:
Product revenues were $55.1 million, a 75% increase from $31.4 million for the prior-year period. Product revenues for 2018 consisted of $44.2 million from sales of the Noden Products and $10.9 million for product sales of the LENSAR® Laser System;
PDL recognized $23.9 million in net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets, compared with $96.9 million for the prior-year period;
PDL received $38.0 million in net cash royalties from its royalty rights year-to-date 2018, compared with $48.1 million for the prior-year period;
Royalties from PDL’s licensees to the Queen et al. patents of $4.0 million, compared with $30.4 million for the prior-year period; and
Interest revenue from note receivable investment to CareView Communications of $1.5 million.

Operating Expense Highlights

Operating expenses for the three months ended June 30, 2018 of $171.7 million increased $140.6 million from $31.1 million for the three months ended June 30, 2017. The increase was a result of the impairment of the Noden intangible asset of $152.3 million due to the increased probability of a generic version of aliskiren being launched in the United States, partially offset by the $22.5 million decrease in fair value of the contingent liability related to reduced estimate in the probabilities in paying milestones to Novartis for Tekturna.
Cost of product revenue for the three months ended June 30, 2018 increased as a result of the Noden Products and LENSAR contributing additional cost of product revenue of $8.4 million and $1.6 million, respectively, due to increased revenue from Noden Products and recognition of costs of goods for ex-U.S. revenue and increased revenue from LENSAR, which PDL did not begin to recognize until May 2017. General and administrative expenses of $14.5 million, increased compared with $11.3 million a year ago, with the increase due to a full quarter of expenses from LENSAR in 2018 versus a partial quarter as a result of its acquisition in May 2017, operation growth for Noden and expenses related to business development activities. Sales and marketing expenses were $5.4 million, compared with





$3.6 million in the prior-year period, with the increase due to an increase in marketing efforts for Noden and LENSAR, and research and development costs decreased based upon the completion of a pediatric trial for Tekturna.
Operating expenses for the six months ended June 30, 2018 were $205.9 million, a $147.9 million increase from $58.0 million for the prior-year period, with the increase primarily a result of the impairment of the Noden intangible asset of $152.3 million, as well as a result of Noden and LENSAR contributing additional cost of product revenue of $14.0 million and $4.0 million, respectively, which was due to increased revenue in Noden and recognition of costs of goods for ex-U.S. revenue and increased revenue from LENSAR, which PDL did not begin to recognized until May 2017, partially offset by the decrease in fair value of the contingent liability.

Stock Repurchase Programs

PDL repurchased 8.2 million shares of its common stock under the $25.0 million share repurchase program during the six months ended June 30, 2018, for an aggregate purchase price of $23.6 million, or an average cost of $2.89 per share, including trading commission. All shares repurchased were retired.
From July 1, 2018 to July 5, 2018, the Company completed this stock repurchase program with the repurchase of 0.6 million shares of its common stock at a weighted average price of $2.44 per share, for a total of $1.4 million.
Since initiating its first stock repurchase program in March 2017, the Company has used $55.0 million to repurchase a total of 22.0 million shares of its common stock.

Other Financial Highlights

PDL had cash, cash equivalents, short-term investments and other investments of $395.7 million as of June 30, 2018, compared with $532.1 million as of December 31, 2017.
The reduction in cash balance for the six months ended June 30, 2018 was primarily a result of the retiring of the remaining $126.4 million of principal from PDL’s 4.0% Convertible Senior Notes due 2018, plus $2.6 million of accrued interest, and common stock repurchases of $23.6 million.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results and provide a business update at 4:30 p.m. Eastern Time today, August 8, 2018. Slides to accompany the conference call are available in the Investor Relations section of www.pdl.com.
 
To access the live conference call via phone, please dial (844) 535-4071 from the United States and Canada or (706) 679-2458 internationally. The conference ID is 7356309. 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 7356309.

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.”
 
About PDL BioPharma, Inc.

We seek to provide a significant return for our stockholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotechnology, 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 of $20.0 million: CareView; we have one hybrid royalty/debt transaction outstanding, representing deployed capital of $44.0 million: Wellstat Diagnostics; and we have five royalty transactions outstanding, representing deployed capital of $416.1 million, respectively: KYBELLA®, AcelRx, University of Michigan, Viscogliosi Brothers and Depomed. Our equity and loan investments in Noden represent deployed capital of $179.0 million, respectively, and our converted equity and loan investment in LENSAR represents deployed capital of $40.0 million.

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 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 16, 2018 and 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.





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

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
 
Royalties from Queen et al. patents
 
$
1,218

 
$
16,285

 
$
4,001

 
$
30,441

Royalty rights - change in fair value
 
12,842

 
83,725

 
23,933

 
96,871

Interest revenue
 
751

 
5,460

 
1,500

 
10,917

Product revenue, net
 
31,761

 
18,829

 
55,085

 
31,410

License and other
 
3

 
19,536

 
574

 
19,636

Total revenues
 
46,575

 
143,835

 
85,093

 
189,275

 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
Cost of product revenue (excluding intangible amortization)
 
14,524

 
4,515

 
25,090

 
7,067

Amortization of intangible assets
 
6,384

 
6,148

 
12,677

 
12,163

General and administrative expenses
 
14,529

 
11,288

 
26,190

 
23,864

Sales and marketing
 
5,385

 
3,616

 
10,898

 
6,200

Research and development
 
684

 
4,281

 
1,477

 
6,047

Impairment of intangible assets
 
152,330

 

 
152,330

 

Change in fair value of anniversary payment and contingent consideration
 
(22,135
)
 
1,207

 
(22,735
)
 
2,649

Total operating expenses
 
171,701

 
31,055

 
205,927

 
57,990

Operating income (loss)
 
(125,126
)
 
112,780

 
(120,834
)
 
131,285

 
 
 
 
 
 
 
 
 
Non-operating income (expense), net
 
 
 
 
 
 
 
 
Interest and other income, net
 
1,376

 
276

 
3,290

 
488

Interest expense
 
(2,811
)
 
(5,015
)
 
(6,396
)
 
(9,986
)
Gain on bargain purchase
 

 
6,271

 

 
6,271

Total non-operating income (expense), net
 
(1,435
)
 
1,532

 
(3,106
)
 
(3,227
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(126,561
)
 
114,312

 
(123,940
)
 
128,058

Income tax expense (benefit)
 
(14,265
)
 
53,873

 
(13,246
)
 
60,425

Net income (loss)
 
(112,296
)
 
60,439

 
(110,694
)
 
67,633

Less: Net loss attributable to noncontrolling interests
 

 

 

 
(47
)
Net income (loss) attributable to PDL’s shareholders
 
$
(112,296
)
 
$
60,439

 
$
(110,694
)
 
$
67,680

 
 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
 
Basic
 
$
(0.76
)
 
$
0.39

 
$
(0.74
)
 
$
0.42

Diluted
 
$
(0.76
)
 
$
0.39

 
$
(0.74
)
 
$
0.42

 
 
 
 
 
 
 
 
 
Shares used to compute income per basic share
 
146,923

 
155,654

 
149,186

 
159,677

Shares used to compute income per diluted share
 
146,923

 
156,394

 
149,186

 
160,168








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

 
 
June 30,
 
December 31,
 
 
2018
 
2017
Cash, cash equivalents and short-term investments
 
$
395,653

 
$
532,114

Total notes receivable
 
$
70,887

 
$
70,737

Total royalty rights - at fair value
 
$
335,163

 
$
349,223

Total assets
 
$
945,995

 
$
1,243,123

Total convertible notes payable
 
$
120,945

 
$
243,481

Total stockholders’ equity
 
$
712,628

 
$
845,890








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 (loss) on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
GAAP net income (loss) attributed to PDL’s shareholders as reported
 
$
(112,296
)
 
$
60,439

 
$
(110,694
)
 
$
67,680

Adjustments to Non-GAAP net income (loss) (as detailed below)
 
126,971

 
(24,851
)
 
140,205

 
(17,430
)
Non-GAAP net income attributed to PDL’s shareholders
 
$
14,675

 
$
35,588

 
$
29,511

 
$
50,250

 
 
 
 
 
 
 
 
 
An itemized reconciliation between net income (loss) on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
GAAP net income (loss) attributed to PDL’s shareholders as reported
 
$
(112,296
)
 
$
60,439

 
$
(110,694
)
 
$
67,680

Adjustments:
 
 
 
 
 
 
 
 
Mark-to-market adjustment to fair value assets
 
6,528

 
(49,157
)
 
14,060

 
(48,809
)
Non-cash interest revenues
 
(76
)
 
(77
)
 
(150
)
 
(152
)
Non-cash stock-based compensation expense
 
1,261

 
963

 
2,218

 
2,075

Non-cash debt offering costs
 
1,779

 
2,719

 
3,911

 
5,394

Mark-to-market adjustment on warrants held
 
(3
)
 
(36
)
 
(74
)
 
(136
)
Impairment of intangible assets
 
152,330

 

 
152,330

 

Amortization of the intangible assets
 
6,384

 
6,148

 
12,677

 
12,163

Mark-to-market adjustment of anniversary payment and contingent consideration
 
(22,135
)
 
1,207

 
(22,735
)
 
2,649

Income tax effect related to above items
 
(19,097
)
 
13,382

 
(22,032
)
 
9,386

Total adjustments
 
126,971

 
(24,851
)
 
140,205

 
(17,430
)
Non-GAAP net income
 
$
14,675

 
$
35,588

 
$
29,511

 
$
50,250


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) impairment of intangible assets, (7) amortization of intangible assets, (8) mark-to-market adjustment related to acquisition-related contingent considerations, and to adjust (9) 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.
Q2 2018
August 8, 2018

Following are some of the key points regarding PDL’s Second quarter 2018 financial and business results.

Highlighted Financial Results from Q2/2018

Total revenues of $46.6 million.
GAAP net loss attributable to PDL’s shareholders of $112.3 million or $(0.76) per diluted share.
GAAP net loss includes a one-time $133.3 million, net of tax, non-cash accounting charge related to the impairment of an intangible asset from Noden Pharma DAC, due to the increased probability of a generic version of aliskiren being launched in the United States, offset by a $19.7 million, net of tax, non-cash decrease in the fair value of the contingent liability related to a reduced estimate of the probability in paying milestones to Novartis for Tekturna®.
Non-GAAP net income attributable to PDL’s shareholders of $14.7 million.
Cash, cash equivalents, short-term investments and other investments of $395.7 million as of June 30, 2018.

Recent Developments

Stock Repurchase Program
In early July, the Company completed the $25.0 million share repurchase program by repurchasing approximately 0.6 million shares of its common stock at a weighted average price of $2.44 per share for a total of $1.4 million. The total amounts repurchased by the Company under the share repurchase program equal approximately 8.7 million shares of its common stock for an aggregate purchase price of $25.0 million, or an average cost of $2.89 per share, including trading commissions.
Depomed Royalty Rights
In August 2018, the Company amended the Royalty Purchase and Sale Agreement (the “Royalty Agreement”) with Depomed, under which the Company acquired all of Depomed’s remaining rights to royalties and milestones payable on sales of type 2 diabetes products licensed by Depomed for $20.0 million. Under the original Royalty Agreement, the Company would have shared future royalties equally with Depomed after total cash received by the Company reached $481.0 million, or two times the Company’s original investment, which the Company expects to occur by October 2020.

Noden Pharma
Noden US is commercializing Tekturna® and Tekturna HCT® in the United States and Noden Pharma DAC, an Ireland based company, assumed commercialization responsibilities for Rasilez® and Rasilez HCT® in the rest of the world, starting in November 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 to acquire for Noden.
Noden net revenue for the quarter ended June 30, 2018 was $25.9 million, with $10.4 million in US revenue and $15.5 million in the rest of world, compared to $16.2 million for the same period in 2017.
Noden product revenues increased 60 percent and accounted for approximately 56 percent of total revenues compared to approximately 11 percent in the second quarter of 2017.
Gross margins on revenue in the second quarter were 58 percent, 92 percent in the U.S. on Tekturna and Tekturna HCT and 35 percent ex-U.S. on Rasilez and Rasilez HCT.
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 Rasilez was either not or only marginally profitable. Although this has had a negative impact on revenue, it has improved operating margins.
In June 2018, Noden Pharma DAC entered into a settlement agreement with Anchen Pharmaceuticals, Inc. and its affiliates to resolve the patent litigation relating to Anchen’s Abbreviated New Drug Application (ANDA) seeking approval from the U.S. Food and Drug Administration to market a generic version of

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PDL BioPharma, Inc.
Q2 2018
August 8, 2018


aliskiren.  Under the Settlement Agreement, Anchen agreed to not commercialize its generic version of aliskiren prior to March 1, 2019, but is not permitted to commercialize a copy of Tekturna. Anchen is the sole ANDA filer for aliskiren of which the Company is aware.
Based upon the patent settlement, Noden evaluated the ongoing value of the Noden asset group based upon the probability of a market entry by Anchen with a generic version of aliskiren in the United States and the associated cash flows and conducted a test for impairment. 
Due to the increased probability of a generic version of aliskiren being launched in the United States in 2019 the Company revised its estimates of future revenues and as a result of this analysis determined that the sum of undiscounted cash flows was not greater than the carrying value of the assets
Noden determined that long-lived assets with a carrying amount of $192.5 million were no longer recoverable and were in fact impaired and wrote them down to their estimated fair value of $40.1 million, resulting in a non-cash pre-tax impairment charge of $152.3 million as of June 30, 2018. This write-down is included in “Impairment of intangible asset” on the Condensed Consolidated Statements of Income. As of June 30, 2018, the remaining Noden Products intangible asset balance is $40.1 million and will be amortized straight-line over the remaining life of 8 years.
Offsetting the impairment was a $22.5 million decrease in fair value of the contingent liability related to reduced estimate in the probability in paying milestones to Novartis for Tekturna.

LENSAR

LENSAR Laser System revenue for the for the quarter ended June 30, 2018 was $5.9 million. PDL did not begin recognizing revenue from LENSAR until May 2017.
Gross margins on LENSAR revenue in the second quarter were 37 percent.

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 June 30, 2018 and with changes from December 31, 2017 as reflected in our Balance Sheet:
 
 
Fair Value as of
 
Royalty Rights -
 
Fair Value as of
(in thousands)
 
December 31, 2017
 
Change in Fair Value
 
June 30, 2018
Depomed
 
$
232,038

 
$
(17,967
)
 
$
214,071

VB
 
14,380

 
284

 
14,664

U-M
 
26,769

 
(620
)
 
26,149

AcelRx
 
72,894

 
4,539

 
77,433

Avinger
 
396

 
(396
)
 

KYBELLA
 
2,746

 
100

 
2,846

 
 
$
349,223

 
$
(14,060
)
 
$
335,163


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PDL BioPharma, Inc.
Q2 2018
August 8, 2018



The following table provides a summary of activity with respect to our royalty rights - change in fair value for the three and six months ended June 30, 2018:
 
 
Three Months Ended
 
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Change in
 
Royalty Rights -
(in thousands)
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
 
 
 
 
 
 
 
Depomed
 
$
17,689

 
$
(8,535
)
 
$
9,154

VB
 
263

 
147

 
$
410

U-M
 
1,289

 
(434
)
 
$
855

AcelRx
 
68

 
2,301

 
$
2,369

Avinger
 
61

 
(101
)
 
$
(40
)
KYBELLA
 

 
94

 
$
94

 
 
$
19,370

 
$
(6,528
)
 
$
12,842


 
 
Six Months Ended
 
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Change in
 
Royalty Rights -
(in thousands)
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
 
 
 
 
 
 
 
Depomed
 
$
34,597

 
$
(17,967
)
 
$
16,630

VB
 
543

 
284

 
827

U-M
 
2,284

 
(620
)
 
1,664

AcelRx
 
120

 
4,539

 
4,659

Avinger
 
366

 
(396
)
 
(30
)
KYBELLA
 
83

 
100

 
183

 
 
$
37,993

 
$
(14,060
)
 
$
23,933


Updates on Royalty Rights Assets

PDL received $19.4 million in net cash royalties from its royalty rights in the second quarter of 2018, compared to $34.6 million for the same period of 2017;

Depomed, Inc. To date (through December 31, 2017), we have received cash royalty payments of $343 million from the $240.5 million investment.
Glumetza (and authorized generic version) royalty: 50% of net sales less COGS continue so long as the products are being commercialized.
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®.

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.
PDL recorded revenue of $1.2 million from Tysabri in Q2 2018.

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PDL BioPharma, Inc.
Q2 2018
August 8, 2018


Royalties from PDL’s licensees to the Queen et al. patents were $15.1 million lower than in the second quarter of 2017 as product supply of Tysabri manufactured prior to patent expiry in the United States have been extinguished and ex-U.S. product supplies are rapidly being exhausted.

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:
 
 
June 30, 2018
 
December 31, 2017
(In thousands)
 
Carrying Value
 
Fair Value
Level 3
 
Carrying Value
 
Fair Value
Level 3
Wellstat Diagnostics note receivable
 
$
50,191

 
$
57,224

 
$
50,191

 
$
51,308

Hyperion note receivable
1,200

1,200

 
1,200

 
1,200

 
1,200

CareView note receivable
19,245

19,496

 
19,507

 
19,346

 
18,750

 
 
$
70,887

 
$
77,931

 
$
70,737

 
$
71,258


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 reports filed with the Securities and Exchange Commission. 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.


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PDL BioPharma, Inc.
Q2 2018
August 8, 2018


Queen et al. Royalties
Royalty Revenue by Product ($ in 000's) *
Tysabri
Q1
Q2
Q3
Q4
Total
2018
2,783

1,218



4,001

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
2018
92,769

40,602



133,371

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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