PDL BioPharma, Inc.
PDL BIOPHARMA, INC. (Form: 8-K, Received: 03/01/2017 16:11:27)



 

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

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of Earliest Event Reported): March 1, 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))
 








Item 2.02 Results of Operations and Financial Condition.
 
On March 1, 2017 , PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the fourth quarter ended December 31, 2016 . A copy of this earnings release is furnished hereto as Exhibit 99.1. The Company will host an earnings call and webcast on March 1, 2017 , during which the Company will discuss its financial results for the fourth quarter ended December 31, 2016 .

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On March 1, 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 December 31, 2016. A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On March 1, 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.
 
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 royalty 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.

Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished with this report:
Exhibit No.
 
Description
99.1
 
Press Release
99.2
 
Presentation
99.3
 
Information Sheet






SIGNATURES

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

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



Dated: March 1, 2017






Exhibit Index
Exhibit No.
 
Description
99.1
 
Press Release
99.2
 
Presentation
99.3
 
Information Sheet





Exhibit 99.1
PDLLOGO2016A07.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 Fourth Quarter and Year End 2016 Financial Results


INCLINE VILLAGE, NV, March 1, 2017 – PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the fourth quarter and year ended December 31, 2016 including:
Total revenues of $66.5 million and $244.3 million for the three and twelve months ended December 31, 2016, respectively.
GAAP diluted EPS of ($0.06) and $0.39 for the three and twelve months ended December 31, 2016, respectively.
GAAP net loss attributable to PDL’s shareholders of $10.3 million and net income of $63.6 million for the three and twelve months ended December 31, 2016, respectively.
Non-GAAP net loss attributable to PDL’s shareholders of $8.6 million and net income of $108.1 million for the three and twelve months ended December 31, 2016, respectively. 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.

The loss attributable to the three months ended December 31, 2016 was a result of a $51.1 million impairment charge relating to our Direct Flow Medical note receivable investment.

“2016 was a transformational year for PDL; one in which we took advantage of opportunities in the specialty pharma space as another tool to increase shareholder value,” said John P. McLaughlin, president and chief executive officer of PDL. “As we look to 2017, we will focus our efforts on Noden product commercialization, along with acquiring additional specialty pharma assets, to drive value creation for PDL and our shareholders.”

Recent Developments

PDL announced today that the company’s board of directors has authorized the repurchase of up to $30 million of the company’s common stock through March 2018.
As a result of ARIAD Pharmaceuticals, Inc. being acquired by Takeda Pharmaceuticals Company Limited on February 16, 2017, PDL exercised its put option with ARIAD and will be repaid an estimated $110 million, which is 1.2 times the original investment less any sums paid to date. We received $9.3 million of royalty payments through December 31, 2016. The cash repayment is expected in late March or early April of 2017.
PDL received a royalty payment for the first quarter of 2017 in the amount of $14.2 million for royalties earned 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.
In January 2017 PDL monetized $7.0 million of certain assets of Direct Flow Medical acquired through its foreclosure.










Revenue Highlights

Total revenues of $66.5 million for the three months ended December 31, 2016 included:
Royalties from PDL’s licensees to the Queen et al. patents of $15.5 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 $28.1 million, which consisted of the change in estimated fair value of our royalty right assets, primarily related to the Depomed, Inc., University of Michigan, ARIAD and AcelRx Pharmaceuticals, Inc.;
Interest revenue from notes receivable financings to kaléo and CareView Communications of $5.5 million; and
Product revenues of $17.5 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).
Total revenues decreased by 63 percent for the three months ended December 31, 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 primarily due to the $27.8 million decrease in fair value of the University of Michigan Cerdelga ® royalty right asset and the decrease in fair value of the AcelRx Zalviso ® royalty rights asset, partially offset by an increase in the fair value of the ARIAD Pharmaceuticals, Inc. royalty right asset.
PDL received $25.3 million in net cash royalty and milestone payments from its royalty rights in the fourth quarter of 2016, compared to $34.4 million for the same period of 2015.
The decrease in interest revenues was primarily due to the early repayment of the Paradigm Spine, LLC notes receivable investment.
Product revenues were derived from sales of the Noden Products.
Total revenues decreased by 59 percent for the twelve months ended December 31, 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 primarily driven by a $36.6 million decrease in the fair value of the University of Michigan royalty rights Cerdelga asset, a $23.1 million decrease in the fair value of the Depomed royalty rights asset and a $3.0 million decrease in the fair value of the Viscogliosi Brothers, LLC royalty right asset, partially offset by a $14.8 million increase in the fair value of the ARIAD Pharmaceuticals, Inc. royalty right asset.
PDL received $72.6 million in net cash royalty payments and milestone payments from its acquired royalty rights in the twelve months ended December 31, 2016, compared to $43.4 million for the same period of 2015.
Product revenues and interest revenue variances were the same as the three months ended December 31, 2016.

Operating Expense Highlights

Operating expenses were $74.2 million for the three months ended December 31, 2016, compared to $16.5 million for the same period of 2015. The increase in operating expenses for the three months ended December 31, 2016, as compared to the same period in 2015, was primarily a result of a $51.1 million impairment charge relating to our Direct Flow Medical note receivable investment and $11.4 million in expenses related to the Noden operations.
Operating expenses were $114.9 million for the twelve months ended December 31, 2016, compared to $40.1 million for the same period of 2015. The increase in operating expenses for the twelve months ended December 31, 2016, as compared to the same period in 2015, was the result of the Direct Flow Medical impairment and $25.6 million in expenses related to the acquisition of the Noden Products and its operations.






Other Financial Highlights

PDL had cash, cash equivalents, and investments of $242.1 million at December 31, 2016, compared to $220.4 million at December 31, 2015.
Net cash provided by operating activities in the twelve months ended December 31, 2016 was $101.7 million, compared with $301.5 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, March 1, 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 77416821. 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 March 8, 2017, and may be accessed by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally. The replay passcode is 77416821.

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 BioPharma, Inc. and its subsidiaries (collectively, the “Company”) 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, the Company began providing alternative sources of capital through royalty monetizations and debt facilities, and in 2016, the Company began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. To date, the Company has consummated 16 of such transactions. Of these transactions, five have concluded with an average annual internal rate of return of 18.4% : Merus Labs International, Inc., Durata Therapeutics, Inc., AxoGen, Inc., Avinger, Inc. and Paradigm Spine, LLC. The Company has four debt transactions outstanding, representing deployed and committed capital of $269.0 million and $309.0 million , respectively: CareView Communications, Inc., kaléo, Inc., Direct Flow Medical, Inc., and LENSAR, Inc.; it has one hybrid royalty/debt transaction outstanding, representing deployed and committed capital of $44.0 million : Wellstat Diagnostics, LLC; and it has six royalty transactions outstanding representing deployed and committed capital of $496.1 million and $537.1 million , respectively: KYBELLA ® , AcelRx Pharmaceuticals, Inc., ARIAD Pharmaceuticals, Inc., The Regents of the University of Michigan, Viscogliosi Brothers, LLC and Depomed, Inc. The Company’s equity and loan investments in Noden Pharma DAC and Noden Pharma USA, Inc. (together, “Noden”) represent deployed and committed capital of $110.0 million and $202.0 million , respectively.

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. 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.
CONSOLIDATED STATEMENTS OF INCOME DATA
(In thousands, except per share amounts)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
 
Royalties from Queen et al. patents
 
$
15,513

 
$
121,240

 
$
166,158

 
$
485,156

Royalty rights - change in fair value
 
28,068

 
49,069

 
16,196

 
68,367

Interest revenue
 
5,503

 
7,606

 
30,404

 
36,202

Product revenue, net
 
17,541

 

 
31,669

 

License and other
 
(133
)
 
143

 
(126
)
 
723

Total revenues
 
66,492

 
178,058

 
244,301

 
590,448

 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
Cost of product revenue (excluding amortization of intangible assets)
 
4,065

 

 
4,065

 

Amortization of intangible assets
 
6,014

 

 
12,028

 

General and administrative expenses
 
12,597

 
12,545

 
39,790

 
36,090

Sales and marketing
 
527

 

 
538

 

Research and development
 
1,887

 

 
3,820

 

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

 
(3,716
)
 

Asset impairment loss
 
3,735

 

 
3,735

 

Acquisition-related costs
 
59

 

 
3,564

 

Loss on extinguishment of notes receivable
 
51,075

 
3,979

 
51,075

 
3,979

Total operating expenses
 
74,160

 
16,524

 
114,899

 
40,069

Operating income/(loss)
 
(7,668
)
 
161,534

 
129,402

 
550,379

 
 
 
 
 
 
 
 
 
Non-operating expense, net
 
 
 
 
 
 
 
 
Interest and other income, net
 
184

 
74

 
588

 
368

Interest expense
 
(4,743
)
 
(5,349
)
 
(18,267
)
 
(27,059
)
Gain (loss) on extinguishment of debt
 
(2,353
)
 
6,450

 
(2,353
)
 
6,450

Total non-operating expense, net
 
(6,912
)
 
1,175

 
(20,032
)
 
(20,241
)
 
 
 
 
 
 
 
 
 
Income/(loss) before income taxes
 
(14,580
)
 
162,709

 
109,370

 
530,138

Income tax expense
 
(4,300
)
 
62,135

 
45,711

 
197,343

Net income/(loss)
 
(10,280
)
 
100,574

 
63,659

 
332,795

Less: Net income attributable to noncontrolling interests
 
56

 

 
53

 

Net income/(loss) attributable to PDL’s shareholders
 
$
(10,336
)
 
$
100,574

 
$
63,606

 
$
332,795

 
 
 
 
 
 
 
 
 
Net income/(loss) per share
 
 
 
 
 
 
 
 
Basic
 
$
(0.06
)
 
$
0.61

 
$
0.39

 
$
2.04

Diluted
 
$
(0.06
)
 
$
0.61

 
$
0.39

 
$
2.03

 
 
 
 
 
 
 
 
 
Shares used to compute income per basic share
 
163,975

 
163,601

 
163,805

 
163,386

Shares used to compute income per diluted share
 
164,549

 
163,801

 
164,192

 
163,554

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$

 
$

 
$
0.10

 
$
0.60








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

 
 
December 31,
 
December 31,
 
 
2016
 
2015
Cash, cash equivalents and investments (includes restricted cash)
 
$
242,141

 
$
220,352

Total notes receivable
 
$
270,950

 
$
364,905

Total royalty rights - at fair value
 
$
402,318

 
$
399,204

Total assets
 
$
1,215,387

 
$
1,012,205

Total term loan payable
 
$

 
$
24,966

Total convertible notes payable
 
$
232,443

 
$
228,862

Total PDL’s stockholders’ equity
 
$
755,423

 
$
695,952






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

 
 
Twelve Months Ended
 
 
December 31,
 
 
2016
 
2015
Net income
 
$
63,659

 
$
332,795

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
52,738

 
(40,521
)
Changes in assets and liabilities
 
(14,679
)
 
9,191

Net cash provided by operating activities
 
$
101,718

 
$
301,465








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
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
GAAP net income/(loss) attributed to PDL’s shareholders as reported
 
$
(10,336
)
 
$
100,574

 
$
63,606

 
$
332,795

Adjustments to Non-GAAP net income/(loss) (as detailed below)
 
1,716

 
(7,561
)
 
44,518

 
(10,201
)
Non-GAAP net income/(loss) attributed to PDL’s shareholders
 
$
(8,620
)
 
$
93,013

 
$
108,124

 
$
322,594

 
 
 
 
 
 
 
 
 
An itemized reconciliation between net income/(loss) on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
GAAP net income/(loss) attributed to PDL’s shareholders as reported
 
$
(10,336
)
 
$
100,574

 
$
63,606

 
$
332,795

Adjustments:
 
 
 
 
 
 
 
 
Mark-to-market adjustment to fair value assets
 
(2,726
)
 
(14,632
)
 
56,386

 
(24,960
)
Non-cash interest revenues
 
(121
)
 
(533
)
 
(2,864
)
 
(5,307
)
Non-cash stock-based compensation expense
 
1,093

 
697

 
3,742

 
2,045

Non-cash debt offering costs
 
3,942

 
3,219

 
10,009

 
12,963

Mark-to-market adjustment on warrants held
 
31

 
(985
)
 
906

 
(985
)
Amortization of the intangible assets
 
6,014

 

 
12,028

 

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

 
(3,716
)
 

Income tax effect related to above items
 
(718
)
 
4,673

 
(31,973
)
 
6,043

Total adjustments
 
1,716

 
(7,561
)
 
44,518

 
(10,201
)
Non-GAAP net income/(loss)
 
$
(8,620
)
 
$
93,013

 
$
108,124

 
$
322,594


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.
Q4 / Full Year 2016
March 1, 2017

Following are some of the key points regarding PDL’s fourth quarter and year-end 2016 financial and business results.

Highlighted Financial Results from Q4 and FY 2016
Total revenues of $66.5 million and $244.3 million for the three and 12 months ended December 31, 2016, respectively.
GAAP diluted EPS of ($0.06) and $0.39 for the three and 12 months ended December 31, 2016, respectively.
GAAP net loss attributable to PDL's shareholders of $10.3 million and net income of $63.6 million for the three and 12 months ended December 31, 2016, respectively.
Non-GAAP net loss attributable to PDL's shareholders of $8.6 million and net income of $108.1 million for the three and 12 months ended December 31, 2016, respectively.

The loss attributable to the three months ended December 31, 2016 was a result of a $51.1 million impairment charge relating to our Direct Flow Medical note receivable investment.

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.
PDL received a royalty payment for the first quarter of 2017 in the amount of $14.2 million for royalties earned 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.
Historical royalty and sales data are listed [in the table below.]

Noden Pharma
On July 1, 2016, Noden Pharma DAC, a newly-formed company organized under the laws of Ireland purchased from Novartis the exclusive worldwide rights to manufacture, market, and sell the branded prescription medicine product sold under the name Tekturna ® and Tekturna HCT ® in the United States and Rasilez ® and Rasilez HCT ® in the rest of the world, and is indicated for the treatment of hypertension.
PDL is a majority owner of Noden and holds three of five board seats. Noden has filled critical leadership positions over the past six months, and the companies are evaluating additional specialty pharma products in the form of optimized, established medicines, to acquire for Noden.
Responsibilities related to Tekturna are actively transitioning from Novartis to Noden. As it relates to commercialization of Tekturna, Noden assumed commercialization responsibilities for the US in early October and has hired a dedicated contract sales force of approximately 40 reps and four district managers that began commercialization efforts at the end of February 2017. Initially, the deal called for Novartis to continue to distribute the four products on behalf of Noden worldwide, and Noden would receive a profit split on such sales. In the United States, the duration of the profit split ran from July 1, 2016 through October 4, 2016.
Ex-US, Novartis companies will continue to distribute the products through transfer of the marketing authorizations in such countries (expected to occur in the first half of 2017) and Noden Pharma DAC will receive the profit transfer from Novartis. Novartis and Noden Pharma DAC are working to transfer the marketing authorizations from Novartis companies to Noden Pharma DAC. The primary focus of Noden Pharma DAC’s commercialization efforts will be EU, Switzerland and Canada. Noden Pharma DAC will likely seek distributors for certain territories, such as Japan.


Page 1

PDL BioPharma, Inc.
Q4 / Full Year 2016
March 1, 2017


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, 2015 and with changes to December 31, 2016 as reflected in our Balance Sheet:
 
 
Fair Value as of
 
 
 
 
Royalty Rights -
 
Fair Value as of
 
(in thousands)
 
December 31, 2015
 
New Assets
 
Change in Fair Value
 
December 31, 2016
 
Depomed
 
$
191,865

 
 
$

 
 
 
$
(27,795
)
 
 
$
164,070

 
VB
 
17,133
 
 
 
 
 
 
 
(2,136
)
 
 
14,997
 
 
U-M
 
70,186
 
 
 
 
 
 
 
(34,800
)
 
 
35,386
 
 
ARIAD
 
50,041
 
 
 
50,000
 
 
 
 
8,590
 
 
 
108,631
 
 
AcelRx
 
67,437
 
 
 
 
 
 
 
46
 
 
 
67,483
 
 
Avinger
 
2,542
 
 
 
 
 
 
 
(904
)
 
 
1,638
 
 
KYBELLA
 
 
 
 
9,500
 
 
 
 
613
 
 
 
10,113
 
 
 
 
$
399,204

 
 
$
59,500

 
 
 
$
(56,386
)
 
 
$
402,318

 

The following tables provides a summary of activity with respect to our royalty rights - change in fair value for the year ended December 31, 2016:
 
 
 
 
Change in
 
Royalty Rights -
 
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
Depomed
$
59,342

 
$
(27,796
)
 
$
31,546
 
 
VB
 
1,468
 
 
 
(2,135
)
 
 
(667
)
 
U-M
 
3,013
 
 
 
(34,799
)
 
 
(31,786
)
 
ARIAD
7,508
 
 
8,590
 
 
 
16,098
 
 
AcelRx
8
 
 
46
 
 
 
54
 
 
Avinger
1,220
 
 
(905
)
 
 
315
 
 
KYBELLA
23
 
 
613
 
 
 
636
 
 
 
$
72,582

 
$
(56,386
)
 
 
$
16,196
 
 

Updates on Royalty Rights Assets

Depomed, Inc.
Glumetza royalty audit is on-going.
Monthly payments from Valeant continue to fluctuate from $2 million to $8 million.
Recent product approvals, Jentadueto XR, Invokamet XR and Synjardy XR have yielded $17 million in milestones in 2016 and will begin 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.

ARIAD Pharmaceuticals, Inc.
Ariad acquired by Takeda in February 2017.
PDL has exercised its put option and will be repaid an estimated $110 million which is 1.2 times the $100 million advanced to Ariad less any sums already repaid. It is currently estimated that our annualized internal rate of return on this investment will be 18%.
Repayment expected in late March or early April 2017.

KYBELLA Royalty Agreement
On July 8, 2016, PDL entered into a royalty purchase agreement with an individual, whereby the Company acquired that individual's rights to receive certain royalties on sales of KYBELLA ® by Allergan, in exchange for a

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PDL BioPharma, Inc.
Q4 / Full Year 2016
March 1, 2017


$9.5 million cash payment and up to $1.0 million in future milestone payments based upon product sales targets. The first revenues on this transaction were recognized in Q3 2016. Royalties to be paid out every six months.


Notes Receivable

The following tables present the fair value of assets and liabilities not subject to fair value recognition by level within the valuation hierarchy:

 
 
December 31, 2016
 
December 31, 2015
 
 
 
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

 
 
$

 
 
$
52,260

 
 
$
50,191
 
 
$

 
 
$
55,970
 
Hyperion note receivable
1,200
 
 
 
 
 
1,200
 
 
 
1,200
 
 
 
 
 
1,200
 
LENSAR note receivable
43,909
 
 
 
 
 
43,900
 
 
 
42,271
 
 
 
 
 
42,618
 
Direct Flow Medical note receivable
10,000
 
 
 
 
 
10,000
 
 
 
51,852
 
 
 
 
 
51,992
 
Paradigm Spine note receivable
 
 
 
 
 
 
 
 
53,973
 
 
 
 
 
54,250
 
kaléo note receivable
146,685
 
 
 
 
 
142,539
 
 
 
146,778
 
 
 
 
 
146,789
 
CareView note receivable
18,965
 
 
 
 
 
19,200
 
 
 
18,640
 
 
 
 
 
19,495
 
Total
 
$
270,950

 
 
$

 
 
$
269,099

 
 
$
364,905
 
 
$

 
 
$
372,314
 

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 and has appointed a magistrate to determine PDL’s damages. Wellstat appealed the ruling, and their appeal was heard in January 2017.
In February 2017, the appellate division of the NY court reversed on procedural grounds the portion of the decision granting PDL summary judgment, but affirmed the portion of the decision denying the Wellstat Diagnostics guarantor defendants’ motion for summary judgment in which they sought a determination that the guarantees had been released. As a result, the litigation has been returned to the Supreme Court of New York to proceed on PDL’s claims as a plenary action.
PDL has commenced a non-judicial foreclosure process to collect on the sale of certain Virginia real estate assets owned by the guarantors of the loan.

Direct Flow Medical, Inc.
Potential lead investor unexpectedly withdrew its term sheet for tranched $65 million equity investment and certain ex-US rights to Direct Flow Medical (DFM) products.
DFM shut down operations in December 2016.
PDL initiated foreclosure proceedings in January 2017 which resulted in obtaining ownership of certain of the Direct Flow Medical assets through a wholly-owned subsidiary, DFM, LLC.
PDL wrote off $51.1 million of assets against ordinary income in Q4 2016.
In Q1 2017, PDL monetized $7.0million of those assets. PDL expects to further monetize assets, the amount of which, if any, is unknown.

LENSAR Credit Agreement
Alphaeon is divesting all of its ophthalmology business, including LENSAR.
In December 2016, LENSAR Inc. re-acquired the assets it had sold to Alphaeon and assumed the obligations under the PDL credit agreement. Also in December, LENSAR Inc., with the support of PDL, filed for bankruptcy under Chapter 11. LENSAR has filed a plan of reorganization with our support under which, subject to bankruptcy

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PDL BioPharma, Inc.
Q4 / Full Year 2016
March 1, 2017


court approval, it is expected that LENSAR will issue equity securities to us in exchange for a portion of our claims in the Chapter 11 case and will become one of our operating subsidiaries. We estimate that this proceeding will be concluded in 2Q17.
In January 2017, the bankruptcy court approved a debtor-in-possession credit agreement whereby PDL agreed to provide up to approximately $2.8 million to LENSAR so that it can continue to operate its business during the remainder of the bankruptcy proceeding.

Paradigm Spine Credit Agreement
On August 26, 2016, the Company received $57.5 million in connection with the prepayment of the loans under the Paradigm Spine Credit Agreement, which included a repayment of the full principal amount outstanding of $54.7 million, plus accrued interest and a prepayment fee.

kaleo, Inc.
Despite Auvi-Q being voluntarily pulled from market and Sanofi returning the product right to kaléo, kaléo has made all required interest payments in full and on time to date.
Evzio sales have been much stronger than projected so far. This is secondary source of repayment to PDL.
kaléo has publicly announced that Auvi-Q has returned to the market in February 2017.

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 factors that could impair the value of the Company's royalty assets, restrict or impede the ability of the Company to invest in new income generating 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, 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.
Q4 / Full Year 2016
March 1, 2017


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




14,156

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.



Page 5

PDL BioPharma, Inc.
Q4 / Full Year 2016
March 1, 2017



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




471,877

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 6