PDL BioPharma, Inc.
Nov 3, 2016

PDL BioPharma Announces Third Quarter 2016 Financial Results

INCLINE VILLAGE, Nev., Nov. 3, 2016 /PRNewswire/ -- PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the third quarter ended September 30, 2016 including:

  • Total revenues of $53.6 million and $177.8 million for the three and nine months ended September 30, 2016, respectively.
  • GAAP diluted EPS of $0.08 and $0.45 for the three and nine months ended September 30, 2016, respectively.
  • GAAP net income attributable to PDL's shareholders of $13.9 million and $73.9 million for the three and nine months ended September 30, 2016, respectively.
  • Non-GAAP net income of $18.9 million and $118.2 million for the three and nine months ended September 30, 2016, respectively.

The largest component of the difference in non-GAAP net income compared to GAAP net income is the exclusion of (i) the mark-to-market reduction in fair value of our investments in royalty rights and (ii) the amortization of intangible assets. A full reconciliation of all components of the GAAP to non-GAAP quarterly financial results can be found in Table 4 at the end of this release.

Revenue Highlights

  • Total revenues of $53.6 million for the three months ended September 30, 2016 included:
    • Royalties from PDL's licensees to the Queen et al. patents of $15.0 million, which consisted of royalties earned on sales of Tysabri® under a license agreement;
    • Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of $16.1 million, which consisted of the change in estimated fair value of our royalty right assets, primarily related to the Depomed, Inc., University of Michigan and AcelRx Pharmaceuticals, Inc. royalty rights acquisitions;
    • Interest revenue from notes receivable financings to late-stage healthcare companies of $8.6 million; and
    • Product revenues from sales of Tekturna® and Tekturna HCT® in the United States and Rasilez® and Rasilez HCT® in the rest of the world of $14.1 million.
  • Total revenues decreased by 57 percent for the three months ended September 30, 2016, when compared to the same period in 2015.
    • 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. PDL continues to receive royalties on sales of Tysabri. The duration of this royalty payment is based on the sales of product manufactured prior to patent expiry, the amount of which is uncertain.
    • The increase in royalty rights - change in fair value was driven by the $9.6 million increase in the fair value of the Depomed royalty rights assets primarily due to a $5.0 million milestone payment based on FDA approval of Invokamet® XR, a Type 2 diabetes drug in our Depomed portfolio, an adjustment to the timing of its estimated cashflows and a reduction in discount rate.
    • PDL received $15.3 million in net cash royalty and milestone payments from its royalty rights in the third quarter of 2016, compared to $6.9 million for the same period of 2015.
    • The decrease in interest revenues was primarily due to ceasing to recognize interest from Direct Flow Medical, Inc. notes receivable.
    • Product revenues were derived 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). Pursuant to the purchase agreement, when Noden Pharma DAC (Noden) acquired the exclusive worldwide rights to manufacture, market, and sell the Noden Products from Novartis. Novartis continued distributing the Noden Products during the third quarter of 2016 and transferred profits with Noden on a net basis (i.e. net of cost of manufacturing and a fee to Novartis). Noden is commercializing the products in the U.S. as of the fourth quarter of 2016.
  • Total revenues decreased by 57 percent for the nine months ended September 30, 2016, when compared to the same period in 2015.
    • 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.
    • The decrease in royalty rights - change in fair value was driven by the $19.2 million decrease in the fair value of the Depomed royalty rights asset, and a $3.4 million decrease in the fair value of the University of Michigan royalty right asset.
    • PDL received $47.2 million in net cash royalty payments and milestone payments from its acquired royalty rights in the nine months ended September 30, 2016, compared to $9.0 million for the same period of 2015.
    • Product revenues and interest revenue variances were the same as the three months ended September 30, 2016.

Operating Expense Highlights

  • Operating expenses were $21.0 million for the three months ended September 30, 2016, compared to $8.5 million for the same period of 2015. The increase in operating expenses for the three months ended September 30, 2016, as compared to the same period in 2015, was primarily a result of the product sales segment acquisition, contributing an additional $6.0 million of acquisition intangible amortization, $2.1 million in a change in fair value in acquisition-related contingent consideration, $1.9 million in research and development costs for the completion of a pediatric trial for the acquired branded prescription medicines Tekturna by Noden and acquisition related costs of $0.5 million. General and administrative expenses increased by $1.9 million, of which $1.1 million relates to an increased headcount and expenses due to the Noden related product acquisitions and $0.3 million relates to additional stock-based compensation expenses and an increase in legal services mostly related to ongoing legal proceedings.
  • Operating expenses were $40.7 million for the nine months ended September 30, 2016, compared to $23.5 million for the same period of 2015. The increase in operating expenses for the nine months ended September 30, 2016, as compared to the same period in 2015, was the result of the expenses related to the acquisition of the Noden Products.

Other Financial Highlights

  • PDL had cash, cash equivalents, and investments of $114.6 million at September 30, 2016, compared to $220.4 million at December 31, 2015.
    • The decrease was primarily attributable to the acquisition of a business, net of cash of $109.9 million, the purchase of a certificate of deposit for $75.0 million, the purchase of additional royalty rights for $59.5 million, repayment of the March 2015 Term Loan for $25.0 million, payment of dividends of $16.4 million, an additional note receivable purchase of $8.0 million, the purchase of short-term investments of $8.0 million, and the payment of debt issuance costs of $0.3 million, partially offset by the repayment of a note receivable balance of $54.7 million, proceeds from royalty right payments of $47.2 million, proceeds from the sale of available-for-sale securities of $1.7 million, cash received from a noncontrolling investor of $0.3 million and cash generated by operating activities of $86.1 million.
  • Net cash provided by operating activities in the nine months ended September 30, 2016 was $86.1 million, compared with $231.4 million in the same period in 2015.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results at 4:30 p.m. Eastern Time today, November 3, 2016.

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 6554182. 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 November 10, 2016, and may be accessed by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally. The replay passcode is 6554182.

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 "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.

PDL seeks to optimize its return on investments so as to provide a significant return for its shareholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotech, pharmaceutical and medical device industries. In late 2012, PDL began providing alternative sources of capital through royalty monetizations and debt facilities and in 2016, began making equity investments in commercial stage companies, the first being Noden Pharma DAC. PDL has committed over $1.4 billion and funded approximately $1.1 billion in these investments to date.

The Company was formerly known as Protein Design Labs, Inc. and changed its name to PDL BioPharma, Inc. in 2006. PDL was founded in 1986 and is headquartered in Incline Village, Nevada. PDL pioneered the humanization of monoclonal antibodies and, by doing so, enabled the discovery of a new generation of targeted treatments for cancer and immunologic diseases for which it has received significant royalty revenue.

PDL BioPharma and the PDL BioPharma logo are considered trademarks of PDL BioPharma, Inc.

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 royalty assets, restrict or impede the ability of the Company to invest in new royalty bearing assets and limit the Company's ability to pay dividends 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 February 23, 2016, as updated by subsequent periodic 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

(Unaudited)

(In thousands, except per share amounts)




Three Months Ended


Nine Months Ended



September 30,


September 30,



2016


2015


2016


2015

Revenues









Royalties from Queen et al. patents


$

14,958



$

119,222



$

150,645



$

363,916


Royalty rights - change in fair value


16,085



(4,280)



(11,872)



19,298


Interest revenue


8,594



9,096



24,901



28,596


Product revenue, net


14,128





14,128




License and other


(127)



580



7



580


Total revenues


53,638



124,618



177,809



412,390











Operating Expenses









Amortization of intangible assets


6,014





6,014




General and administrative expenses


10,396



8,450



27,193



23,545


Sales and marketing


11





11




Research and development


1,933





1,933




Change in fair value of anniversary payment and contingent consideration


2,083





2,083




Acquisition-related costs


546





3,505




Total operating expenses


20,983



8,450



40,739



23,545


Operating income


32,655



116,168



137,070



388,845











Non-operating expense, net









Interest and other income, net


162



87



404



294


Interest expense


(4,513)



(5,901)



(13,524)



(21,710)


Total non-operating expense, net


(4,351)



(5,814)



(13,120)



(21,416)











Income before income taxes


28,304



110,354



123,950



367,429


Income tax expense


14,400



40,895



50,011



135,208


Net income


13,904



69,459



73,939



232,221


Net loss attributable to noncontrolling interests


3





3




Net income attributable to PDL's shareholders


$

13,907



$

69,459



$

73,942



$

232,221











Net income per share









Basic


$

0.08



$

0.42



$

0.45



$

1.42


Diluted


$

0.08



$

0.42



$

0.45



$

1.42











Shares used to compute income per basic share


163,856



163,560



163,771



163,314


Shares used to compute income per diluted share


164,285



163,742



164,075



163,899











Cash dividends declared per common share


$



$



$

0.10



$

0.60


 

TABLE 2

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEET DATA

(Unaudited)

(In thousands)




September 30,


December 31,



2016


2015

Cash, cash equivalents and investments


$

114,575



$

220,352


Total notes receivable


$

320,997



$

364,905


Total royalty rights - at fair value


$

399,592



$

399,204


Total assets


$

1,216,066



$

1,012,205


Total term loan payable


$



$

24,966


Total convertible notes payable


$

234,895



$

228,862


Total stockholders' equity


$

753,856



$

695,952


 

TABLE 3

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW DATA

(Unaudited)

(In thousands)




Nine Months Ended



September 30,



2016


2015

Net income


$

73,939



$

232,221


Adjustments to reconcile net income to net cash provided by operating activities


22,682



386


Changes in assets and liabilities


(10,556)



(1,221)


Net cash provided by operating activities


$

86,065



$

231,386


 

TABLE 4

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


Nine Months Ended



September 30,


September 30,



2016


2015


2016


2015

GAAP net income attributed to PDL's shareholders as reported


$

13,907



$

69,459



$

73,942



$

232,221


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


4,960



10,122



44,211



(2,535)


Non-GAAP net income attributed to PDL's shareholders


$

18,867



$

79,581



$

118,153



$

229,686











An itemized reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:












Three Months Ended


Nine Months Ended



September 30,


September 30,



2016


2015


2016


2015

GAAP net income attributed to PDL's shareholders as reported


$

13,907



$

69,459



$

73,942



$

232,221


Adjustments:









Mark-to-market adjustment to fair value assets


(754)



11,159



59,112



(10,328)


Non-cash interest revenues


(468)



(1,366)



(2,744)



(4,775)


Non-cash stock-based compensation expense


1,050



621



2,649



1,348


Non-cash debt offering costs


2,048



5,678



6,067



9,744


Mark-to-market adjustment on warrants held


128





875




Amortization of the intangible assets


6,014





6,014




Mark-to-market adjustment of anniversary payment and contingent consideration


2,083





2,083




Income tax effect related to above items


(5,141)



(5,970)



(29,845)



1,476


Total adjustments


4,960



10,122



44,211



(2,535)


Non-GAAP net income


$

18,867



$

79,581



$

118,153



$

229,686


 

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.

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SOURCE PDL BioPharma, Inc.

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