PDL BioPharma, Inc.
PDL BIOPHARMA, INC. (Form: 8-K, Received: 08/03/2017 16:06:26)



 

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

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of Earliest Event Reported): August 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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 








Item 2.02 Results of Operations and Financial Condition.
 
On August 3, 2017 , PDL BioPharma, Inc. (the Company) issued a press release announcing its financial results for the second quarter ended June 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 August 3, 2017 , during which the Company will discuss its financial results for the second quarter ended June 30, 2017 .

Item 7.01 Regulation FD Disclosure.
 
Presentation Materials
 
On August 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 June 30, 2017 . A copy of this presentation is attached hereto as Exhibit 99.2.
 
Information Sheet
 
On August 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: August 3, 2017






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





Exhibit 99.1
PDLLOGOEA.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 Second Quarter 2017 Financial Results
Total Revenues Increased by 583% and 52% for 2Q17 and YTD 2017, respectively

INCLINE VILLAGE, NV, August 3, 2017 – PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the second quarter ended June 30, 2017 including:
Total revenues of $143.8 million and $189.3 million for the three and six months ended June 30, 2017, respectively.
GAAP diluted EPS of $0.39 and $0.42 for the three and six months ended June 30, 2017, respectively.
GAAP net income attributable to PDL’s shareholders of $60.4 million and $67.7 million for the three and six months ended June 30, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $40.2 million and $53.5 million for the three and six months ended June 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 $143.8 million for the three months ended June 30, 2017 included:
Royalties from PDL’s licensees to the Queen et al. patents of $16.3 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 $83.7 million , which consisted of the change in estimated fair value of our royalty right assets, primarily related to Depomed, Inc., University of Michigan, AcelRx Pharmaceuticals, Inc. and Kybella;
Interest revenue from notes receivable financings to kaléo and CareView Communications of $5.5 million ; and
Product revenues of $18.8 million , which consisted of $16.2 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 $2.6 million for sales and leasing of the LENSAR Laser System.
Total revenues increased by 583 percent for the three months ended June 30, 2017, when compared to the same period in 2016.
The increase in royalties from PDL’s licensees to the Queen et al. patents is due to the increased royalties on Tysabri ® from Biogen, Inc.
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 $87.0 million.
PDL received $34.6 million in net cash royalties from its royalty rights in the second quarter of 2017, compared to $14.7 million for the same period of 2016. The increase in cash royalties is mainly due to the launch of the authorized generic for Glumetza ® in February 2017 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, retroactive to February 2017.





The decrease in interest revenues was primarily due to the early repayment of the Paradigm Spine, LLC 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, 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 $19.2 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 ® .
Total revenues increased by 52 percent for the six months ended June 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.
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 $93.5 million.
PDL received $48.1 million in net cash royalties from its royalty rights in the six months ended June 30, 2017, compared to $31.9 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 variances were the same as the three months ended June 30, 2017.

Operating Expense Highlights

Operating expenses were $31.1 million for the three months ended June 30, 2017, compared to $9.9 million for the same period of 2016. The increase in operating expenses for the three months ended June 30, 2017, as compared to the same period in 2016, was primarily a result of the $18.9 million in expenses related to the Noden operations, including $7.4 million of non-cash intangible asset amortization and a change in fair value of contingent consideration, and $3.8 million in LENSAR operating activities since the business acquisition on May 11, 2017.
Operating expenses were $58.0 million for the six months ended June 30, 2017, compared to $19.8 million for the same period of 2016. The increase in operating expenses for the six months ended June 30, 2017, as compared to the same period in 2016, was primarily a result of the $34.4 million in expenses related to the Noden operations, including $14.8 million of non-cash intangible asset amortization and a change in fair value of contingent consideration, and $3.8 million in LENSAR operating activities.

Recent Developments

PDL completed its $30 million share repurchase program, purchasing 13.347 million shares during the four-month period from the initial announcement in March 2017 through completion in June 2017.
In July 2017, PDL received a royalty payment from Valeant in the amount of $6.6 million for royalties earned on sales of Glumetza for the month of June. The royalty payment included royalties related to the authorized generic version of Glumetza. This payment will be recorded as part of PDL’s third quarter of 2017 revenue.

Other Financial Highlights

PDL had cash, cash equivalents, short-term investments and other investments of $435.3 million at June 30, 2017, compared to $242.1 million at December 31, 2016.
Net cash provided by operating activities in the six months ended June 30, 2017 was $61.6 million , compared with $94.8 million in the same period in 2016
PDL anticipates an estimated cash tax rate of 15% as the company begins to utilize available tax operating loss carry forwards and credits and expects an effective tax rate of approximately 47% 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, August 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 51927827. 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 51927827.

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. To date, we have consummated 17 of such transactions, of which nine are active and outstanding. We have two debt transactions outstanding, representing deployed and committed capital of $170.0 million and $190.0 million , respectively: CareView and kaléo; 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 $179.0 million and $202.0 million , respectively.

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 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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Royalties from Queen et al. patents
 
$
16,285

 
$
14,232

 
$
30,441

 
$
135,687

Royalty rights - change in fair value
 
83,725

 
(855
)
 
96,871

 
(27,957
)
Interest revenue
 
5,460

 
7,343

 
10,917

 
16,307

Product revenue, net
 
18,829

 

 
31,410

 

License and other
 
19,536

 
327

 
19,636

 
134

Total revenues
 
143,835

 
21,047

 
189,275

 
124,171

 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
Cost of product revenue (excluding intangible amortization)
 
4,515

 

 
7,067

 

Amortization of intangible assets
 
6,148

 

 
12,163

 

General and administrative expenses
 
11,288

 
6,951

 
23,864

 
16,797

Sales and marketing
 
3,616

 

 
6,200

 

Research and development
 
4,281

 

 
6,047

 

Change in fair value of anniversary payment and contingent consideration
 
1,207

 

 
2,649

 

Acquisition-related costs
 

 
2,959

 

 
2,959

Total operating expenses
 
31,055

 
9,910

 
57,990

 
19,756

Operating income
 
112,780

 
11,137

 
131,285

 
104,415

 
 
 
 
 
 
 
 
 
Non-operating expense, net
 
 
 
 
 
 
 
 
Interest and other income, net
 
276

 
129

 
488

 
242

Interest expense
 
(5,015
)
 
(4,461
)
 
(9,986
)
 
(9,011
)
Gain on bargain purchase
 
6,271

 

 
6,271

 

Total non-operating expense, net
 
1,532

 
(4,332
)
 
(3,227
)
 
(8,769
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
114,312

 
6,805

 
128,058

 
95,646

Income tax expense
 
53,873

 
2,657

 
60,425

 
35,611

Net income
 
60,439

 
4,148

 
67,633

 
60,035

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

 

 
(47
)
 

Net income attributable to PDL’s shareholders
 
$
60,439

 
$
4,148

 
$
67,680

 
$
60,035

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
0.39

 
$
0.03

 
$
0.42

 
$
0.37

Diluted
 
$
0.39

 
$
0.03

 
$
0.42

 
$
0.37

 
 
 
 
 
 
 
 
 
Shares used to compute income per basic share
 
155,654

 
163,791

 
159,677

 
163,729

Shares used to compute income per diluted share
 
156,394

 
164,029

 
160,168

 
163,920

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$

 
$
0.05

 
$

 
$
0.10








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

 
 
June 30,
 
December 31,
 
 
2017
 
2016
Cash, cash equivalents and short-term investments
 
$
435,323

 
$
242,141

Total notes receivable
 
$
217,193

 
$
270,950

Total royalty rights - at fair value
 
$
342,958

 
$
402,318

Total assets
 
$
1,301,971

 
$
1,215,387

Total convertible notes payable
 
$
237,837

 
$
232,443

Total stockholders’ equity
 
$
818,798

 
$
755,423






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

 
 
Six Months Ended
 
 
June 30,
 
 
2017
 
2016
Net income
 
$
67,633

 
$
60,035

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
(44,789
)
 
25,969

Changes in assets and liabilities
 
38,768

 
8,748

Net cash provided by operating activities
 
$
61,612

 
$
94,752








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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
60,439

 
$
4,148

 
$
67,680

 
$
60,035

Adjustments to Non-GAAP net income (as detailed below)
 
(20,225
)
 
10,984

 
(14,159
)
 
40,164

Non-GAAP net income attributed to PDL’s shareholders
 
$
40,214

 
$
15,132

 
$
53,521

 
$
100,199

 
 
 
 
 
 
 
 
 
An itemized reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2017
 
2016
 
2017
 
2016
GAAP net income attributed to PDL’s shareholders as reported
 
$
60,439

 
$
4,148

 
$
67,680

 
$
60,035

Adjustments:
 
 
 
 
 
 
 
 
Mark-to-market adjustment to fair value assets
 
(49,157
)
 
15,543

 
(48,809
)
 
59,866

Non-cash interest revenues
 
(77
)
 
(325
)
 
(152
)
 
(2,276
)
Non-cash stock-based compensation expense
 
963

 
813

 
2,075

 
1,599

Non-cash debt offering costs
 
2,719

 
1,558

 
5,394

 
4,019

Mark-to-market adjustment on warrants held
 
(36
)
 
418

 
(136
)
 
747

Amortization of the intangible assets
 
6,148

 

 
12,163

 

Mark-to-market adjustment of anniversary payment and contingent consideration
 
1,207

 

 
2,649

 

Income tax effect related to above items
 
18,008

 
(7,023
)
 
12,657

 
(23,791
)
Total adjustments
 
(20,225
)
 
10,984

 
(14,159
)
 
40,164

Non-GAAP net income
 
$
40,214

 
$
15,132

 
$
53,521

 
$
100,199


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.
Q2 2017
August 3, 2017

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

Highlighted Financial Results from Q2 2017
Total revenues of $143.8 million and $189.3 million for the three and six months ended June 30, 2017, respectively.
GAAP diluted EPS of $0.39 and $0.42 for the three and six months ended June 30, 2017, respectively.
GAAP net income attributable to PDL’s shareholders of $60.4 million and $67.7 million for the three and six months ended June 30, 2017, respectively.
Non-GAAP net income attributable to PDL’s shareholders of $40.2 million and $53.5 million for the three and six months ended June 30, 2017.
PDL completed its $30 million share repurchase program, purchasing 13.3 million shares during the four-month period from the initial announcement in March 2017 through completion in June 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 second quarter of 2017 in the amount of $16.3 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.

Noden Pharma
Noden US is commercializing Tekturna ® and Tekturna HCT ® in the United States and Noden Pharma DAC, an Irish based company, assumed 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 repurchased it’s 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.
Noden net revenue for the quarter ended June 30, 2017 was $16.2 million, with $12.9 million in US revenue and $3.3 million in the rest of world.
Gross margins on the US revenue in the second quarter were approximately 81.0 percent.
The $3.3 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 (specifically EU, Switzerland, Canada and Japan) have been delayed per our original plan and are now expected to take place in the fourth quarter of this year.
Novartis has begun deregistering the product in countries in which the products have limited sales volumes and low operating margins.
Noden filed its NDA for the pediatric indication and formulation of Tekturna . Approval is estimated to be sometime in the first quarter of 2018 and if approved, would grant Tekturna and Tekturna HCT an additional six months of marketing exclusivity in the US.

Page 1

PDL BioPharma, Inc.
Q2 2017
August 3, 2017


Noden received a paragraph IV notice letter from Anchen Pharnaceuticals advising that Anchen had submitted an ANDA referencing Tekturna 150mg an 300mg tablets and containing certifications against U.S. Patent No. 8,617,595, which is listed in the Orange Book for Tekturna and expires on February 26, 2026. Noden filed a complaint for patent infringement in the US District Court of New Jersey against Anchen and Par Pharmaceuticals within 45 days from receipt of the paragraph IV notice letter. As a result, Anchen’s ANDA is subject to a stay of approval for up to 30 months. The proceeding is currently in the pre-trial phase.

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 June 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
 
June 30, 2017
 
Depomed
 
$
164,070

 
 
$

 
 
 
$
51,697

 
 
$
215,767

 
VB
 
14,997
 
 
 
 
 
 
 
299
 
 
 
15,296
 
 
U-M
 
35,386
 
 
 
 
 
 
 
199
 
 
 
35,585
 
 
ARIAD
 
108,631
 
 
 
(108,169
)
 
 
 
(462
)
 
 
 
 
AcelRx
 
67,483
 
 
 
 
 
 
 
4,304
 
 
 
71,787
 
 
Avinger
 
1,638
 
 
 
 
 
 
 
(503
)
 
 
1,135
 
 
KYBELLA
 
10,113
 
 
 
 
 
 
 
(6,725
)
 
 
3,388
 
 
 
 
$
402,318

 
 
$
(108,169
)
 
 
 
$
48,809

 
 
$
342,958

 

The following table provides a summary of activity with respect to our royalty rights - change in fair value for the year ended June 30, 2017:
 
 
 
 
Change in
 
Royalty Rights -
 
 
Cash Royalties
 
Fair Value
 
Change in Fair Value
Depomed
$
41,767

 
$
51,697
 
 
$
93,464
 
 
VB
 
701
 
 
299
 
 
 
1,000
 
 
U-M
 
1,828
 
 
199
 
 
 
2,027
 
 
ARIAD
3,081
 
 
(462
)
 
 
2,619
 
 
AcelRx
46
 
 
4,304
 
 
 
4,350
 
 
Avinger
610
 
 
(503
)
 
 
107
 
 
KYBELLA
29
 
 
(6,725
)
 
 
(6,696
)
 
 
$
48,062

 
$
48,809

 
 
$
96,871
 
 

Updates on Royalty Rights Assets

Depomed, Inc.
To date (through June 30, 2017), we have received cash royalty payments of $253.1 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. PDL is auditing Valeant.
In July 2017, PDL received a royalty payment from Valeant in the amount of $6.6 million for royalties earned on sales of Glumetza for the month of June. The royalty payment included royalties related to the authorized generic version of Glumetza. This payment will be recorded as part of PDL’s third quarter of 2017 revenue.
Recent product approvals, Jentadueto XR, Invokamet XR and Synjardy XR have yielded $17 million in milestones in 2016 and started generating royalties to PDL.

Page 2

PDL BioPharma, Inc.
Q2 2017
August 3, 2017


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:
 
 
June 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

 
 
$

 
 
$
51,315

 
 
$
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
146,654
 
 
 
 
 
143,591
 
 
 
146,685
 
 
 
 
 
 
142,539
 
 
CareView note receivable
19,148
 
 
 
 
 
19,300
 
 
 
18,965
 
 
 
 
 
 
19,200
 
 
Total
 
$
217,193

 
 
$

 
 
$
215,406

 
 
$
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.

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 $8.1 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.
As of June 30, 2017 remaining foreclosed assets are recorded as assets held for sale with a carrying value of $1.9 million.

LENSAR Credit Agreement
LENSAR has emerged from bankruptcy, and LENSAR and PDL completed LENSAR’s financial restructuring with a court-approved exit plan finalized on May 11, 2017.
As a result of the restructuring, PDL converted most of its debt to an equity ownership position.
LENSAR is now a wholly-owned subsidiary of PDL, and PDL began consolidating LENSAR’s financial statements with PDL effective 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.

Page 3

PDL BioPharma, Inc.
Q2 2017
August 3, 2017


In the second quarter of 2017, PDL recognized and was paid $4.7 million in interest revenue from the kaléo note.
 
CareView Communications, Inc.
A second $20.0 million tranche was to be funded by PDL upon CareView’s attainment of specified milestones relating to the placement of CareView Systems and financial targets and was to be accomplished no later than June 30, 2017. These milestones were not achieved, and there is no additional funding obligation due to CareView from PDL.
In the second quarter of 2017, PDL recognized and was paid $0.7 million in interest revenue from the CareView 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.


Page 4

PDL BioPharma, Inc.
Q2 2017
August 3, 2017


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

16,284



30,440

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.
Q2 2017
August 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

542,761



1,014,638

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