PDL BioPharma, Inc.
PDL BIOPHARMA, INC. (Form: 8-K, Received: 11/02/2017 16:09:43)



 

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): November 2, 2017

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 November 2, 2017 , PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the third quarter ended September 30, 2017 . A copy of this earnings release is furnished hereto as Exhibit 99.1. The Company will host an earnings call and webcast on November 2, 2017 , during which the Company will discuss its financial results for the third quarter ended September 30, 2017 .

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On November 2, 2017 , 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 September 30, 2017 . A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On November 2, 2017 , the Company distributed to analysts covering the Company’s securities a summary of certain information regarding the Company’s net income, dividends, 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, 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.






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: November 2, 2017






Exhibit Index
Exhibit No.
 
Description
99.1
 
99.2
 
99.3
 





Exhibit 99.1
PDLLOGOEAA02.JPG
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 Third Quarter 2017 Financial Results
Third Quarter GAAP EPS Increased 75%
Total Revenues Increased by 17% and 42% for 3Q17 and YTD 2017, respectively

INCLINE VILLAGE, NV, November 2, 2017 – PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the third quarter ended September 30, 2017 including:
Total revenues of $62.7 million and $252.0 million for the three and nine months ended September 30, 2017, respectively.
GAAP diluted EPS of $0.14 and $0.56 for the three and nine months ended September 30, 2017, respectively.
GAAP net income attributable to PDL’s shareholders of $20.7 million and $88.4 million for the three and nine months ended September 30, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $21.7 million and $73.7 million for the three and nine months ended September 30, 2017. A full reconciliation of all components of the GAAP to non-GAAP financial results can be found in Table 4 at the end of the release.

Revenue Highlights

Total revenues of $62.7 million for the three months ended September 30, 2017 included:
Royalties from PDL’s licensees to the Queen et al. patents of $1.4 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 $35.4 million , which consisted of the change in estimated fair value of our royalty right assets, primarily related to Depomed, Inc.;
Interest revenue from notes receivable financings to kaléo and CareView Communications of $6.1 million ; and
Product revenues of $20.1 million , which consisted of $15.1 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 $5.0 million for sales and leasing of the LENSAR Laser System.
Total revenues increased by 17 percent for the three months ended September 30, 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;
The increase in royalty rights - change in fair value was primarily due to the current period increase in fair value of the Depomed, Inc. royalty asset by $22.0 million.
PDL received $26.3 million in net cash royalties from its royalty rights in the third quarter of 2017, compared to $15.3 million for the same period of 2016. The increase in cash royalties is mainly due to the launch of the authorized generic for Glumetza ® sold by Valeant Pharmaceuticals International, Inc. (Valeant) subsidiary,





Oceanside Pharmaceuticals, 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 early repayment of the Paradigm Spine, LLC note receivable investment.
The increase in product revenues were derived from the sale and lease of the LENSAR Laser System, which PDL did not begin to recognize until May 11, 2017.
Total revenues increased by 42 percent for the nine months ended September 30, 2017, when compared to the same period in 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, Inc. royalty asset by $144.3 million.
PDL received $74.4 million in net cash royalties from its royalty rights in the nine months ended September 30, 2017, compared to $47.2 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 investment and ceasing to recognize interest from the LENSAR 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 the sale and lease of the LENSAR Laser System, which PDL did not begin to recognize until May 11, 2017.
License and other revenue increased by $19.5 million primarily due to a $19.5 million payment from Merck as part of the previously announced settlement agreement to resolve the patent infringement lawsuits related to Keytruda ® .

Operating Expense Highlights

Operating expenses were $30.1 million for the three months ended September 30, 2017, compared to $21.0 million for the same period of 2016. The increase in operating expenses for the three months ended September 30, 2017, as compared to the same period in 2016, was primarily a result of the $5.6 million increase in costs of Noden and LENSAR product revenues, $5.0 million increase in Noden and LENSAR sales and marketing costs due to the increase in sales force headcount, and increase general and administrative expenses, partially offset by the $1.4 million decrease in amortization of the Novartis anniversary payment and contingent consideration.
Operating expenses were $88.1 million for the nine months ended September 30, 2017, compared to $40.7 million for the same period of 2016. The increase in operating expenses for the nine months ended September 30, 2017, as compared to the same period in 2016, was primarily a result of the $12.6 million increase in costs of Noden and LENSAR product revenues, the $12.4 million increase in amortization of intangible assets, the $11.2 million increase in Noden and LENSAR sales and marketing costs due to a increase in sales force headcount, the $8.7 million increase general and administrative expenses related to the Noden and LENSAR businesses being acquired by PDL in the prior year, and $4.7 million increase in research and development, partially offset by the $3.5 million decrease in acquisition related expenses related to the Noden acquisition in 2016.

Recent Developments

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, which will be transferred to PDL pursuant to the terms of the Depomed Royalty Agreement. The cash from the settlement agreement is expected to be received in Q4 2017 and has been reflected in the Depomed royalty rights asset discounted cashflow valuation as of September 30, 2017.
On October 26, 2017, PDL submitted a proposal to acquire Neos Therapeutics, Inc. for $10.25 per share in cash, which represented a premium of 40 percent to the closing price of Neos shares on October 25, 2017 and a premium of 41 percent to Neos' share price prior to PDL's initial proposal on June 23, 2017. The acquisition of Neos is consistent with PDL's stated strategy for growth and is a logical next step in the execution of its strategic plan. In particular, the Company believes that this acquisition would create an attractive pediatric platform and foundation for future growth. Subsequently, Neos' Board of Directors rejected PDL’s proposal and refuses to engage in a constructive dialogue with





PDL management on behalf of Neos’ shareholders. PDL has a number of investment opportunities before it, of which Neos is only one. PDL's proposal remains outstanding through November 8, 2017. PDL will evaluate all of its options in the interim.
On October 26, 2017, Biogen sent to PDL a notice of overpayment related to royalties on Tysabri on sales in the US, Spain, Italy and South Africa for $13.5 million through the period ending September 30, 2017. The notice states that the overpayment was the result of royalties being paid on product manufactured after the expiration of the Queen et al. patents. PDL received cash payments of $14.9 million during the third quarter of 2017. As a result of the receipt of this overpayment notice, royalty revenue from the Queen et al. patents was $1.4 million, in the third quarter of 2017, which was the net amount of $14.9 million cash received and the potential overpayment of $13.5 million. PDL recorded a refund liability for the potential overpayment amount of $13.5 million at September 30, 2017. Biogen indicated to us that royalty payment for Tysabri in the fourth quarter of 2017 will be $4.5 million leaving a net potential overpayment of $9.0 million. PDL is currently working with Biogen to resolve this issue.
In October 2017, PDL received a royalty payment from Valeant in the amount of $6.9 million for royalties earned on sales of Glumetza for the month of September. The royalty payment included royalties related to the authorized generic version of Glumetza.
On September 21, 2017, PDL entered into an agreement with a third-party purchaser, pursuant to which PDL sold its entire interest in the kaléo, Inc note. Pursuant to the agreement, the purchaser paid PDL an amount equal to 100% of the then outstanding principal plus a premium of 1% of the principal amount and accrued interest, for an aggregate cash purchase price of $141.7 million, subject to an 18-month escrow holdback of $1.4 million against certain potential contingencies.

Other Financial Highlights

PDL had cash, cash equivalents, short-term investments and other investments of $516.5 million at September 30, 2017, compared to $242.1 million at December 31, 2016.
Net cash provided by operating activities in the nine months ended September 30, 2017 was $58.1 million , compared with $86.1 million in the same period in 2016. The decrease was as a result of the fair value changes of PDL’s royalty rights.
PDL anticipates an estimated cash tax rate of 22% as the company begins to utilize available tax operating loss carry forwards and credits and expects an effective tax rate of approximately 41% in fiscal 2017, which is dependent on the mix and timing of income.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results at 4:30 p.m. Eastern Time today, November 11, 2017.
 
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 8794857. 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 8794857.

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.

We seek 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 2012, PDL began providing alternative sources of capital through royalty monetizations and debt facilities, and in 2016, began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. To date, PDL has consummated 17 such transactions, of which 9 are active and outstanding. PDL has one debt transaction outstanding, representing deployed and committed capital of $20.0 million: CareView; one hybrid royalty/debt transaction outstanding, representing deployed and committed capital of $44.0 million: Wellstat Diagnostics; and five royalty transactions outstanding, representing deployed and committed capital of $396.1 million and $397.1 million, respectively: KYBELLA ® , AcelRx, University of Michigan, Viscogliosi Brothers and Depomed. Our equity and loan investments in Noden represent deployed and





committed capital of $179.0 million and $202.0 million, respectively, and its converted equity and loan investment in LENSAR represents deployed capital of $40 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, 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Royalties from Queen et al. patents
 
$
1,443

 
$
14,958

 
$
31,884

 
$
150,645

Royalty rights - change in fair value
 
35,353

 
16,085

 
132,224

 
(11,872
)
Interest revenue
 
6,051

 
8,594

 
16,968

 
24,901

Product revenue, net
 
20,067

 
14,128

 
51,477

 
14,128

License and other
 
(165
)
 
(127
)
 
19,471

 
7

Total revenues
 
62,749

 
53,638

 
252,024

 
177,809

 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
Cost of product revenue (excluding intangible amortization)
 
5,565

 

 
12,632

 

Amortization of intangible assets
 
6,275

 
6,014

 
18,438

 
6,014

General and administrative expenses
 
11,989

 
10,396

 
35,853

 
27,193

Sales and marketing
 
4,994

 
11

 
11,194

 
11

Research and development
 
605

 
1,933

 
6,652

 
1,933

Change in fair value of anniversary payment and contingent consideration
 
700

 
2,083

 
3,349

 
2,083

Acquisition-related costs
 

 
546

 

 
3,505

Total operating expenses
 
30,128

 
20,983

 
88,118

 
40,739

Operating income
 
32,621

 
32,655

 
163,906

 
137,070

 
 
 
 
 
 
 
 
 
Non-operating expense, net
 
 
 
 
 
 
 
 
Interest and other income, net
 
238

 
162

 
726

 
404

Interest expense
 
(5,096
)
 
(4,513
)
 
(15,082
)
 
(13,524
)
Gain (loss) on bargain purchase
 
(2,276
)
 

 
3,995

 

Total non-operating expense, net
 
(7,134
)
 
(4,351
)
 
(10,361
)
 
(13,120
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
25,487

 
28,304

 
153,545

 
123,950

Income tax expense
 
4,755

 
14,400

 
65,180

 
50,011

Net income
 
20,732

 
13,904

 
88,365

 
73,939

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

 
(3
)
 
(47
)
 
(3
)
Net income attributable to PDL’s shareholders
 
$
20,732

 
$
13,907

 
$
88,412

 
$
73,942

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
0.14

 
$
0.08

 
$
0.56

 
$
0.45

Diluted
 
$
0.14

 
$
0.08

 
$
0.56

 
$
0.45

 
 
 
 
 
 
 
 
 
Shares used to compute income per basic share
 
151,146

 
163,856

 
156,802

 
163,771

Shares used to compute income per diluted share
 
152,317

 
164,285

 
157,529

 
164,075

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$

 
$

 
$

 
$
0.10








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

 
 
September 30,
 
December 31,
 
 
2017
 
2016
Cash, cash equivalents and short-term investments
 
$
516,494

 
$
242,141

Total notes receivable
 
$
70,636

 
$
270,950

Total royalty rights - at fair value
 
$
351,969

 
$
402,318

Total assets
 
$
1,223,838

 
$
1,215,387

Total convertible notes payable
 
$
240,638

 
$
232,443

Total stockholders’ equity
 
$
822,982

 
$
755,423






TABLE 3
PDL BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW DATA
(Unaudited)
(In thousands)

 
 
Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
Net income
 
$
88,365

 
$
73,939

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
(74,202
)
 
22,682

Changes in assets and liabilities
 
43,900

 
(10,556
)
Net cash provided by operating activities
 
$
58,063

 
$
86,065








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,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
20,732

 
$
13,907

 
$
88,412

 
$
73,942

Adjustments to Non-GAAP net income (as detailed below)
 
975

 
4,960

 
(14,730
)
 
44,211

Non-GAAP net income attributed to PDL’s shareholders
 
$
21,707

 
$
18,867

 
$
73,682

 
$
118,153

 
 
 
 
 
 
 
 
 
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,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
20,732

 
$
13,907

 
$
88,412

 
$
73,942

Adjustments:
 
 
 
 
 
 
 
 
Mark-to-market adjustment to fair value assets
 
(9,011
)
 
(754
)
 
(57,820
)
 
59,112

Non-cash interest revenues
 
(670
)
 
(468
)
 
(823
)
 
(2,744
)
Non-cash stock-based compensation expense
 
939

 
1,050

 
3,014

 
2,649

Non-cash debt offering costs
 
2,801

 
2,048

 
8,195

 
6,067

Mark-to-market adjustment on warrants held
 
165

 
128

 
29

 
875

Amortization of the intangible assets
 
6,275

 
6,014

 
18,438

 
6,014

Mark-to-market adjustment of anniversary payment and contingent consideration
 
700

 
2,083

 
3,349

 
2,083

Income tax effect related to above items
 
(224
)
 
(5,141
)
 
10,888

 
(29,845
)
Total adjustments
 
975

 
4,960

 
(14,730
)
 
44,211

Non-GAAP net income
 
$
21,707

 
$
18,867

 
$
73,682

 
$
118,153


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 99.2

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Exhibit 99.3

PDL BioPharma, Inc.
Q3 2017
November 2, 2017

Following are some of the key points regarding PDL’s third quarter 2017 financial and business results.

Highlighted Financial Results from Q3 2017
Total revenues of $62.7 million and $252.0 million for the three and nine months ended September 30, 2017, respectively. An increase of 17% and 42%, respectively year on year.
GAAP diluted EPS of $0.14 and $0.56 for the three and nine months ended September 30, 2017, respectively.
Third quarter GAAP EPS Increased 75%.
GAAP net income attributable to PDL’s shareholders of $20.7 million and $88.4 million for the three and nine months ended September 30, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $21.7 million and $73.7 million for the three and nine months ended September 30, 2017. A full reconciliation of all components of the GAAP to non-GAAP financial results can be found in Table 4 at the end of the release.

PDL Proposes to Acquire Neos Therapeutics
On October 26, 2017, PDL submitted a proposal to acquire Neos Therapeutics, Inc. for $10.25 per share in cash, which represented a premium of 40 percent to the closing price of Neos shares on October 25, 2017 and a premium of 41 percent to Neos' share price prior to PDL's initial proposal on June 23, 2017. The acquisition of Neos is consistent with PDL's stated strategy for growth and is a logical next step in the execution of its strategic plan. In particular, the Company believes that this acquisition would create an attractive pediatric platform and foundation for future growth. Subsequently, Neos' Board of Directors rejected PDL’s proposal and has refused to engage in a constructive dialogue with PDL management on behalf of Neos’ shareholders. PDL has a number of investment opportunities before it, of which Neos is only one. PDL's proposal remains outstanding through November 8, 2017. PDL will evaluate all of its options in the interim.

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

Tysabri ® (Approved royalty-bearing product relating to Queen et al. patents)
Continue to receive royalties on Tysabri from Biogen with respect to sales of the licensed product manufactured prior to patent expiry in jurisdictions providing patent protection licenses.
During our Q3 close period, Biogen sent PDL a notice of overpayment related to royalties on Tysabri sales of $13.5 million through the period ending September 30, 2017. The notice stated that the overpayment was the result of royalties being paid on product manufactured after the expiration of the Queen et al. patents. We had received cash payments of $14.9 million earlier during the third quarter of 2017. The $1.4 million we recognized was the net amount of $14.9 million cash received and the potential overpayment of $13.5 million.
Biogen informed PDL that the Q4 2017 royalties will be $4.5 million leaving a net potential overpayment of $9.0 million. PDL is currently working with Biogen to resolve this issue, however based upon preliminary discussions with Biogen, they do not expect further royalties in the US, and should expect a further reduction in royalties in other countries as product inventory manufactured prior to expiration of the Queen patents is depleted.

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 repurchased its non-controlling interest in Noden and now owns 100% of Noden and continues to hold three of five board seats.
Noden and PDL are evaluating additional specialty pharma products in the form of optimized, established medicines, to acquire for Noden.

Page 1

PDL BioPharma, Inc.
Q3 2017
November 2, 2017


Noden net revenue for the quarter ended September 30, 2017 was $15.1 million, with $11.5 million in US revenue and $3.6 million in the rest of world.
Gross margins on the US revenue in the third quarter were 83.9 percent.
The $3.6 million of revenue for the ex-U.S. is net of cost of goods and a fee to Novartis through its transition services agreement and will continue until marketing authorizations have been transferred.
Novartis and Noden Pharma DAC are working to transfer the marketing authorizations from Novartis companies to Noden Pharma DAC or to deregister the products.
These transfers are on track in most markets to transfer by the end of the year, as previously announced, and in 2018 for some markets in Asia, in particular.
We are looking at each country on a case-by-case basis, which for example, led us to discontinue selling Rasilez in France, where the product was not profitable. This will have a negative impact on revenue but a positive one on profitability and return on our investment.

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, 2016 and with changes to September 30, 2017 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
 
September 30, 2017
 
Depomed
 
$
164,070

 
 
$

 
 
 
$
58,625

 
 
$
222,695

 
VB
 
14,997
 
 
 
 
 
 
 
440
 
 
 
15,437
 
 
U-M
 
35,386
 
 
 
 
 
 
 
63
 
 
 
35,449
 
 
ARIAD
 
108,631
 
 
 
(108,169
)
 
 
 
(462
)
 
 
 
 
AcelRx
 
67,483
 
 
 
 
 
 
 
6,582
 
 
 
74,065
 
 
Avinger
 
1,638
 
 
 
 
 
 
 
(777
)
 
 
861
 
 
KYBELLA
 
10,113
 
 
 
 
 
 
 
(6,651
)
 
 
3,462
 
 
 
 
$
402,318

 
 
$
(108,169
)
 
 
 
$
57,820

 
 
$
351,969

 

The following table provides a summary of activity with respect to our royalty rights - change in fair value for the year ended September 3 0 , 2017:
 
 
 
 
Change in
 
Royalty Rights -
 
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
Depomed
$
66,465

 
$
58,625
 
 
$
125,090
 
 
VB
 
1,005
 
 
440
 
 
 
1,445
 
 
U-M
 
2,717
 
 
63
 
 
 
2,780
 
 
ARIAD
3,081
 
 
(462
)
 
 
2,619
 
 
AcelRx
88
 
 
6,582
 
 
 
6,670
 
 
Avinger
915
 
 
(777
)
 
 
138
 
 
KYBELLA
133
 
 
(6,651
)
 
 
(6,518
)
 
 
$
74,404

 
$
57,820

 
 
$
132,224
 
 

Updates on Royalty Rights Assets
Depomed, Inc.
To date (through September 30, 2017), we have received cash royalty payments of $277.8 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.

Page 2

PDL BioPharma, Inc.
Q3 2017
November 2, 2017


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, which will be transferred to PDL pursuant to the terms of the Depomed Royalty Agreement.  The cash from the settlement agreement is expected to be received in Q4 2017 and has been reflected in the Depomed royalty rights asset discounted cashflow valuation as of September 30, 2017.
In October 2017, PDL received a royalty payment from Valeant in the amount of $6.9 million for royalties earned on sales of Glumetza for the month of September. The royalty payment included royalties related to the authorized generic version of Glumetza.
Recent product approvals, Jentadueto XR, Invokamet XR and Synjardy XR have yielded $17 million in milestones in 2016 and started generating royalties to PDL.
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.

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:
 
 
September 30, 2017
 
December 31, 2016
 
 
 
Carrying Value
 
Fair Value
Level 2
 
Fair Value
Level 3
 
Carrying Value
 
Fair Value
Level 2
 
Fair Value
Level 3
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Wellstat Diagnostics note receivable
 
$
50,191

 
 
$

 
 
$
52,288

 
 
$
50,191

 
 
$

 
 
$
52,260

 
Hyperion note receivable
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
 
 
 
 
 
19,900
 
 
 
18,965
 
 
 
 
 
 
19,200
 
 
Total
 
$
70,636

 
 
$

 
 
$
73,388

 
 
$
270,950

 
 
$

 
 
$
269,099

 

Updates on Notes Receivable

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 $55.8MM plus interest and fees.  While Wellstat Therapeutics will only receive the award in a final court decision or settlement between the parties, and BTG may appeal the decision, PDL nonetheless in late October filed with the NY Court a request for a pre-judgment attachment of those funds, should Wellstat Therapeutics find itself in possession of the funds.  

Direct Flow Medical, Inc.
PDL initiated foreclosure proceedings in January 2017 which resulted in obtaining ownership of certain of the DFM assets through a wholly-owned subsidiary, DFM, LLC.
PDL wrote off $51.1 million of assets against ordinary income in Q4 2016.
YTD 2017, PDL monetized $8.2 million of those assets. PDL is in the process of monetizing the ex-China assets of DFM, LLC. The amount of which recovery, if any, is unknown at this time.

Page 3

PDL BioPharma, Inc.
Q3 2017
November 2, 2017


As of September 30, 2017 remaining foreclosed assets are recorded as assets held for sale with a carrying value of $1.8 million.

kaleo, Inc.
On September 21, 2017, PDL entered into an agreement with a third-party purchaser, pursuant to which the Company sold its entire interest in the kaléo, Inc. note. Pursuant to the agreement, the purchaser paid PDL an amount equal to 100% of the then outstanding principal plus a premium of 1% of such amount and accrued interest under the Notes, for an aggregate cash purchase price of $141.7 million, subject to an 18-month escrow holdback of $1.4 million against certain potential contingencies.

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 4

PDL BioPharma, Inc.
Q3 2017
November 2, 2017


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

16,284

1,443


31,883

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


1,064,822

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.
 


Page 5