PDL BioPharma, Inc.
PDL BIOPHARMA, INC. (Form: 8-K, Received: 05/03/2017 16:15:14)



 

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): May 3, 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 May 3, 2017 , PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the first quarter ended March 31, 2017 . A copy of this earnings release is furnished hereto as Exhibit 99.1. The Company will host an earnings call and webcast on May 3, 2017 , during which the Company will discuss its financial results for the first quarter ended March 31, 2017 .

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On May 3, 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 March 31, 2017 . A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On May 3, 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: May 3, 2017






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





Exhibit 99.1
PDLLOGO2016A09.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 First Quarter 2017 Financial Results


INCLINE VILLAGE, NV, May 3, 2017 – PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the first quarter ended March 31, 2017 including:
Total revenues of $45.4 million for the three months ended March 31, 2017.
GAAP diluted EPS of $0.04 for the three months ended March 31, 2017.
GAAP net income attributable to PDL’s shareholders of $7.2 million for the three months ended March 31, 2017.
Non-GAAP net income attributable to PDL’s shareholders of $13.2 million for the three months ended March 31, 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.

“We have had a number of positive events related to our income generating assets this year which have resulted in significant cash infusions, including the repayment of the ARIAD investment and the successful settlement of litigation related to Keytruda,” said John P. McLaughlin, president and chief executive officer of PDL. “With a cash balance of over $400 million, and a nimble business development process, we are poised to acquire additional specialty pharma drug products in 2017.”

Recent Developments

In April 2017, the Company entered into a settlement agreement with Merck to resolve the patent infringement lawsuit between the parties pending in the U.S. District Court for the District of New Jersey related to Merck’s Keytruda humanized antibody product. Under the terms of the agreement, Merck will pay the Company a one-time, lump-sum payment of $19.5 million , and the Company will grant Merck a fully paid-up, royalty-free, non-exclusive license to certain of the Company’s Queen et al. patent rights for use in connection with Keytruda as well as a covenant not to sue Merck for any royalties regarding Keytruda. In addition, the parties agreed to dismiss all claims in the relevant legal proceedings. The payment of $19.5 million is expected to be recognized as license revenue for the second quarter ending June 30, 2017.
On March 1, 2017, the Company announced that its board of directors has authorized the repurchase of up to $30.0 million of the Company’s common stock through March 2018. As of March 31, 2017, the Company has repurchased a total of 3.9 million shares of its common stock in open market transactions under the share repurchase program for an aggregate purchase price of $8.5 million , or an average cost of $2.16 per share. From April 1, 2017 to April 28, 2017, the Company repurchased 3.7 million shares of its common stock under the share repurchase program at a weighted average price of $2.16 per share for a total of $7.9 million. Since the inception of the share repurchase program in March 2017, the Company has repurchased 7.6 million shares of its common stock for a total of $16.4 million.
In April 2017, PDL received a royalty payment from Valeant Pharmaceuticals International, Inc. in the amount of $8.5 million for royalties earned on sales of Glumetza for the month of March. The monthly royalty payment was a result of lower reported gross to net deductions. This payment will be recorded in the second quarter of 2017.






Revenue Highlights

Total revenues of $45.4 million for the three months ended March 31, 2017 included:
Royalties from PDL’s licensees to the Queen et al. patents of $14.2 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 $13.1 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 $12.6 million from sales of Tekturna ® and Tekturna HCT ® in the United States of $9.7 million and Rasilez ® and Rasilez HCT ® in the rest of the world (collectively, the Noden Products) of $2.9 million.
Total revenues decreased by 56 percent for the three months ended March 31, 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 period ended March 31, 2016 being the last quarter in which PDL received royalties from Genentech, Inc.
The increase in royalty rights - change in fair value was primarily due to the prior year decrease in fair value of the Depomed, Inc. royalty asset.
PDL received $13.5 million in net cash royalties from its royalty rights in the first quarter of 2017, compared to $17.2 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 the non-accrual status of the LENSAR, Inc. note receivable investment.
Product revenues were derived from sales of the Noden Products, which PDL did not begin to recognize until the third quarter of 2016.

Operating Expense Highlights

Operating expenses were $26.9 million for the three months ended March 31, 2017, compared to $9.8 million for the same period of 2016. The increase in operating expenses for the three months ended March 31, 2017, as compared to the same period in 2016, was primarily a result of the $15.5 million in expenses related to the Noden operations, including $7.5 million of non-cash intangible asset amortization and a change in fair value of contingent consideration.

Other Financial Highlights

PDL had cash, cash equivalents, and short-term investments of $409.3 million at March 31, 2017, compared to $242.1 million at December 31, 2016. The current cash balance includes a $111.3 million payment from ARIAD as a result of PDL’s exercise of its put option under the ARIAD royalty agreement.
Net cash provided by operating activities in the three months ended March 31, 2017 was $45.8 million , compared with $92.5 million in the same period in 2016.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results at 4:30 p.m. Eastern Time today, May 3, 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 13017592. 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 May 10, 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 13017592.

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 our shareholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotech, pharmaceutical and medical device industries. In 2012, we began providing alternative sources of capital through royalty monetizations and debt facilities, and in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. We have three debt transactions outstanding, representing deployed and committed capital of $210.0 million and $250.0 million , respectively: CareView, kaléo, and LENSAR; we have one hybrid royalty/debt transaction outstanding, representing deployed and committed capital of $44.0 million : Wellstat Diagnostics; and we have 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 $110.0 million and $202.0 million , respectively.

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, 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
 
 
March 31,
 
 
2017
 
2016
Revenues
 
 
 
 
Royalties from Queen et al. patents
 
$
14,156

 
$
121,455

Royalty rights - change in fair value
 
13,146

 
(27,102
)
Interest revenue
 
5,457

 
8,964

Product revenue, net
 
12,581

 

License and other
 
100

 
(193
)
Total revenues
 
45,440

 
103,124

 
 
 
 
 
Operating Expenses
 
 
 
 
Cost of product revenue (excluding intangible amortization)
 
2,552

 

Amortization of intangible assets
 
6,015

 

General and administrative expenses
 
12,576

 
9,846

Sales and marketing
 
2,584

 

Research and development
 
1,766

 

Change in fair value of anniversary payment and contingent consideration
 
1,442

 

Total operating expenses
 
26,935

 
9,846

Operating income
 
18,505

 
93,278

 
 
 
 
 
Non-operating expense, net
 
 
 
 
Interest and other income, net
 
212

 
113

Interest expense
 
(4,971
)
 
(4,550
)
Total non-operating expense, net
 
(4,759
)
 
(4,437
)
 
 
 
 
 
Income before income taxes
 
13,746

 
88,841

Income tax expense
 
6,552

 
32,954

Net income
 
7,194

 
55,887

Less: Net (loss)/income attributable to noncontrolling interests
 
(47
)
 

Net income attributable to PDL’s shareholders
 
$
7,241

 
$
55,887

 
 
 
 
 
Net income per share
 
 
 
 
Basic
 
$
0.04

 
$
0.34

Diluted
 
$
0.04

 
$
0.34

 
 
 
 
 
Shares used to compute income per basic share
 
163,745

 
163,701

Shares used to compute income per diluted share
 
163,992

 
163,835

 
 
 
 
 
Cash dividends declared per common share
 
$

 
$
0.05








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

 
 
March 31,
 
December 31,
 
 
2017
 
2016
Cash, cash equivalents and short-term investments
 
$
409,318

 
$
242,141

Total notes receivable
 
$
261,025

 
$
270,950

Total royalty rights - at fair value
 
$
293,801

 
$
402,318

Total assets
 
$
1,237,773

 
$
1,215,387

Total convertible notes payable
 
$
235,118

 
$
232,443

Total stockholders’ equity
 
$
762,936

 
$
755,423






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

 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Net income
 
$
7,194

 
$
55,887

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
13,453

 
22,336

Changes in assets and liabilities
 
25,135

 
14,283

Net cash provided by operating activities
 
$
45,782

 
$
92,506








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
 
 
March 31,
 
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
7,241

 
$
55,887

Adjustments to Non-GAAP net income (as detailed below)
 
5,971

 
28,901

Non-GAAP net income attributed to PDL’s shareholders
 
$
13,212

 
$
84,788

 
 
 
 
 
An itemized reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
7,241

 
$
55,887

Adjustments:
 
 
 
 
Mark-to-market adjustment to fair value assets
 
348

 
44,323

Non-cash interest revenues
 
(75
)
 
(1,951
)
Non-cash stock-based compensation expense
 
1,112

 
786

Non-cash debt offering costs
 
2,675

 
2,461

Mark-to-market adjustment on warrants held
 
(100
)
 
329

Amortization of the intangible assets
 
6,015

 

Mark-to-market adjustment of anniversary payment and contingent consideration
 
1,442

 

Income tax effect related to above items
 
(5,446
)
 
(17,047
)
Total adjustments
 
5,971

 
28,901

Non-GAAP net income
 
$
13,212

 
$
84,788


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.
Q1 2017
May 3, 2017

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

Highlighted Financial Results from Q1 2017
Total revenues of $45.4 million for the three months ended March 31, 2017.
GAAP diluted EPS of $0.04 for the three months ended March 31, 2017.
GAAP net income attributable to PDL’s shareholders of $7.2 million for the three months ended March 31, 2017.
Non-GAAP net income attributable to PDL’s shareholders of $13.2 million for the three months ended March 31, 2017.

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.

Merck Patent Infringement Settlement
In late April, we entered into a settlement agreement with certain subsidiaries of Merck to resolve the pending patent infringement lawsuit related to Merck’s manufacture or sale of Keytruda humanized antibody product prior to the expiration of the Queen et al patents at the end of 2014.
Under the terms of the agreement, Merck will pay us a one time, lump-sum payment of $19.5 million in exchange for our granting them a fully paid-up, royalty free, non-exclusive license to certain of our Queen et al. patent rights for use in connection with Keytruda as well as a covenant not to sue them for any royalties regarding Keytruda.

Noden Pharma
Noden US is commercializing Tekturna ® and Tekturna HCT ® in the United States and Noden Pharma DAC, an Irish based company, will assume commercialization responsibilities for Rasilez ® and Rasilez HCT ® in the rest of the world in the second half of 2017. The products are indicated for the treatment of hypertension.
PDL is currently a 98.8% owner of Noden and holds 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.
Noden net revenue for the quarter ended March 31, 2017 was $12.6 million, with $9.7 million in US revenue and $2.9 million in the rest of world.
Gross margin on the US revenue in the 1 st quarter were approximately 74 percent.
The $2.9 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 product.
These transfers (specifically EU, Switzerland, Canada and Japan) have been delayed per our original plan and are now expected to take place in the second half of this year.
Novartis has begun deregistering the product in countries in which the product has limited sales volumes and low operating margins.



Page 1

PDL BioPharma, Inc.
Q1 2017
May 3, 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, 2016 and with changes to March 31, 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
 
March 31, 2017
 
Depomed
 
$
164,070

 
 
$

 
 
 
$
(2,432
)
 
 
$
161,638

 
VB
 
14,997
 
 
 
 
 
 
 
174
 
 
 
15,171
 
 
U-M
 
35,386
 
 
 
 
 
 
 
299
 
 
 
35,685
 
 
ARIAD
 
108,631
 
 
 
(108,169
)
 
 
 
(462
)
 
 
 
 
AcelRx
 
67,483
 
 
 
 
 
 
 
2,113
 
 
 
69,596
 
 
Avinger
 
1,638
 
 
 
 
 
 
 
(248
)
 
 
1,390
 
 
KYBELLA
 
10,113
 
 
 
 
 
 
 
208
 
 
 
10,321
 
 
 
 
$
402,318

 
 
$
(108,169
)
 
 
 
$
(348
)
 
 
$
293,801

 

The following table provides a summary of activity with respect to our royalty rights - change in fair value for the year ended March 31, 2017:
 
 
 
 
Change in
 
Royalty Rights -
 
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
Depomed
$
8,853

 
$
(2,432
)
 
$
6,421
 
 
VB
 
381
 
 
174
 
 
 
555
 
 
U-M
 
824
 
 
299
 
 
 
1,123
 
 
ARIAD
3,081
 
 
(462
)
 
 
2,619
 
 
AcelRx
20
 
 
2,113
 
 
 
2,133
 
 
Avinger
305
 
 
(248
)
 
 
57
 
 
KYBELLA
30
 
 
208
 
 
 
238
 
 
 
$
13,494

 
$
(348
)
 
 
$
13,146
 
 

Updates on Royalty Rights Assets
Depomed, Inc.
To date (through March 31, 2017), we have received cash royalty payments of $221.5 million of the $240.5 million investment.
Glumetza royalty: 50% of net sales less COGS until the termination of the Depomed agreement which we estimate could be late 2029. PDL is auditing Valeant.
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.
In April 2017, PDL received a royalty payment from Valeant Pharmaceuticals International, Inc. in the amount of $8.5 million for royalties earned on sales of Glumetza for the month of March. The monthly royalty payment was a result of lower reported gross to net deductions. This payment will be recorded in the second quarter of 2017.


Page 2

PDL BioPharma, Inc.
Q1 2017
May 3, 2017



ARIAD Pharmaceuticals, Inc.
Ariad acquired by Takeda in February 2017.
PDL exercised its put option and was repaid $111.3 million which is 1.2 times the $100 million advanced to Ariad less any sums already repaid. The annualized internal rate of return on this investment was 17.5%.
The $111.3 million payment was received on March 30, 2017 and was recognized in our Q1 financials.

AcelRx
PDL acquired 75% of the royalty that Grünenthal pays to AcelRx for rights to commercialize Zalviso in the EU, Switzerland and Australia.
PDL also receives 80% of the first four commercial milestones.
Zalviso was approved in September 2015 and was launched in the second quarter of 2016. Full EU launch is occurring later than anticipated.
Net selling price is higher than expected at 95-118 Euros per treatment.

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:
 
 
March 31, 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

 
 
$

 
 
$
51,397

 
 
$
50,191

 
 
$

 
 
$
52,260

 
Hyperion note receivable
1,200
 
 
 
 
 
1,200
 
 
 
1,200
 
 
 
 
 
 
1,200
 
 
LENSAR note receivable
43,909
 
 
 
 
 
43,900
 
 
 
43,909
 
 
 
 
 
 
43,900
 
 
Direct Flow Medical note receivable
 
 
 
 
 
 
 
 
10,000
 
 
 
 
 
 
10,000
 
 
kaléo note receivable
146,670
 
 
 
 
 
143,511
 
 
 
146,685
 
 
 
 
 
 
142,539
 
 
CareView note receivable
19,055
 
 
 
 
 
20,035
 
 
 
18,965
 
 
 
 
 
 
19,200
 
 
Total
 
$
261,025

 
 
$

 
 
$
260,043

 
 
$
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 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 commenced a non-judicial foreclosure process to collect on the sale of certain Virginia real estate assets owned by the guarantors of the loan as well as initiating a UCC Article 9 sale of certain intellectual property assets of the guarantors..
In March 2017, the Wellstat Diagnostics Guarantors filed an order to show cause with the New York Supreme Court to enjoin the Company’s sale of the real estate or enforcing its security interests in the Wellstat Diagnostics Guarantors’ intellectual property during the pendency of any action involving the guarantees at issue. The Company is awaiting a hearing on the motions of the Wellstat Diagnostics Guarantors .

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PDL BioPharma, Inc.
Q1 2017
May 3, 2017



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.
In Q1 2017, PDL monetized $7.9 million of those assets. PDL is in the process of monetizing the ex-China assets of DFM. The amount of which recovery, if any, is unknown at this time.
As of March 31, 2017 remaining foreclosed assets are recorded as assets held for sale with a carrying value of $2.1 million.

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 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.
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.
On April 26, 2017 the bankruptcy court approved the plan of reorganization, and the Company expects that LENSAR will emerge from the Chapter 11 case on or about May 11, 2017.

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.
Auvi-Q returned to the market in February 2017 and third party reports suggest strong sales.
Evzio sales have been much stronger than projected so far. This is secondary source of repayment to PDL.
In the first quarter of 2017, PDL recognized $4.7 million in interest revenue from the kaléo note.

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.


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PDL BioPharma, Inc.
Q1 2017
May 3, 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.
Q1 2017
May 3, 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