SEC Filing | PDL BioPharma, Inc.

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pdli-20201231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

FORM 10-K

___________________________________________


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the transition period from to

Commission File Number: 000-19756

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PDL BioPharma, Inc.

(Exact name of registrant as specified in its charter)

___________________________________________


Delaware			94-3023969
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

59 Damonte Ranch Parkway, Suite B-375

Reno, Nevada 89521

(Address of principal executive offices)

Registrant’s telephone number, including area code

(775) 832-8500

932 Southwood Boulevard

Incline Village, Nevada 89451

(Former Address)

___________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol	Name of Exchange on which Registered
None	N/A	N/A

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ý

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicated 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 ¨

Indicate by check mark whether the registrant has filed a report and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

The aggregate market value of shares of common stock held by non-affiliates of the registrant, based on the closing sale price of a share of common stock on June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter), as reported on the Nasdaq Global Select Market, was $291,544,988.

As of January 6, 2021, the registrant had outstanding 114,515,806 shares of common stock.

PDL BIOPHARMA, INC.

2020 Form 10-K Annual Report

Table of Contents


PART I

Item 1	Business	4
Item 1A	Risk Factors	11
Item 1B	Unresolved Staff Comments	16
Item 2	Properties	16
Item 3	Legal Proceedings	16
Item 4	Mine Safety Disclosures	16

PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6	Selected Consolidated Financial Data	18
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	36
Item 8	Financial Statements and Supplementary Data	37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	108
Item 9A	Controls and Procedures	108
Item 9B	Other Information	108

PART III

Item 10	Directors, Executive Officers and Corporate Governance	109
Item 11	Executive Compensation	112
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	130
Item 13	Certain Relationships and Related Transactions, and Director Independence	130
Item 14	Principal Accountant Fees and Services	131

PART IV

Item 15	Exhibits and Financial Statement Schedules	133
Item 16	Form 10-K Summary	133

SIGNATURES		140

PART I

Forward-looking Statements

This Form 10-K 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. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, including any statements concerning the timing, implementation or success of our monetization strategy/plan of complete liquidation, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “intends,” “plans,” “believes,” “targets,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue” or “opportunity,” or the negative thereof or other comparable terminology. The forward-looking statements in this Form 10-K are only predictions. Although we believe that the expectations presented in the forward-looking statements contained herein are reasonable at the time of filing, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct. These forward-looking statements, including with regards to our plan of dissolution, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below, and for the reasons described elsewhere in this Form 10-K. All forward-looking statements and reasons why results may differ included in this Form 10-K are made as of the date hereof. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

We own or have rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including PDL BioPharma, Inc. and the PDL logo, each of which is considered a registered trademark. All other company names, product names, trade names and trademarks included in this Form 10-K are trademarks, registered trademarks or trade names of their respective owners.

ITEM 1. BUSINESS

Overview

In this report all references to “PDL,” “we,” “us,” “our” or the “Company” mean collectively PDL BioPharma, Inc. and its subsidiaries, except where it is made clear that the term means only PDL BioPharma, Inc.

Throughout our history, our mission has been to improve the lives of patients by aiding in the successful development of innovative therapeutics and healthcare technologies. PDL BioPharma was founded in 1986 as Protein Design Labs, Inc. when it pioneered the humanization of monoclonal antibodies, enabling the discovery of a new generation of targeted treatments that have had a profound impact on patients living with different cancers as well as a variety of other debilitating diseases. In 2006, we changed our name to PDL BioPharma, Inc.

Historically, we generated a substantial portion of our revenues through the license agreements related to patents covering the humanization of antibodies, which we refer to as the Queen et al. patents. In 2012, and in anticipation of declining revenues from the Queen et al. patents, 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, first with our acquisition of branded prescription pharmaceutical drugs from Novartis AG, Novartis Pharma AG and Speedel Holding AG (collectively, “Novartis”) in 2016 and, in 2017, with the acquisition of LENSAR, Inc. (“LENSAR”), a medical device ophthalmology equipment manufacturing company. In 2019, we entered into a securities purchase agreement with Evofem Biosciences, Inc. (“Evofem”), pursuant to which we invested $60.0 million in a private placement of securities. These investments provided funding for Evofem’s pre-commercial activities for Phexxi®, its non-hormonal, on-demand prescription contraceptive gel for women.

Our Segments

Based on the nature of our investments entered into between 2012 through 2019 and further discussed below, our operations were structured in four segments designated as Medical Devices, Strategic Positions, Income Generating Assets, and Pharmaceutical.

Our Medical Devices segment consisted of revenue from the sale and lease of the LENSAR® Laser System, which included equipment, Patient Interface Devices (“PIDs”), procedure licenses, training, installation, warranty and maintenance agreements.

Our Strategic Positions segment consisted of an investment in Evofem (NASDAQ: EVFM). Our investment included shares of common stock and warrants to purchase additional shares of common stock.

Our Pharmaceutical segment consisted of revenue derived from branded prescription medicine products sold under the name Tekturna® and Tekturna HCT® in the United States, Rasilez® and Rasilez HCT® in the rest of the world and revenue generated from the sale of an authorized generic form of Tekturna in the United States (collectively, the “Noden Products”).

Our Income Generating Assets segment consisted of revenue derived from (i) notes and other long-term receivables, (ii) royalty rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from issued patents in the United States and elsewhere covering the humanization of antibodies, which we refer to as the Queen et al. patents.

Financial information about our segments, including our revenues and net loss for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, and select long-lived assets as of December 31, 2020 and 2019, is included in our Consolidated Financial Statements and accompanying notes in this Form 10-K.

Liquidation and Dissolution Plan

In September 2019, we engaged financial and legal advisors and initiated a review of our strategy. This review was completed in December 2019. At such time, we disclosed that we planned to halt the execution of our growth strategy, cease making additional strategic transactions and investments and instead pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders (the “monetization strategy”). We further announced in December 2019 that we would explore a variety of potential transactions in connection with the monetization strategy, including a whole Company sale, divestiture of our assets, spin-offs of operating entities, merger opportunities or a combination thereof. Over the subsequent months, our board of directors (the “Board”) and management analyzed, together with our outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to the stockholders.

In February 2020, the Board approved a plan of complete liquidation (the “Plan of Liquidation”) of our assets and passed a resolution to seek stockholder approval to dissolve our Company. At our Annual Meeting of Stockholders in August 2020, the proposal to liquidate and dissolve our Company pursuant to a plan of dissolution was approved by our stockholders. On November 5, 2020, our Board approved filing a certificate of dissolution with the Secretary of State of Delaware in January 2021 and proceeding to complete the dissolution process for our Company in accordance with the Delaware General Corporate Law. The filing of the certificate of dissolution occurred on January 4, 2021 and we closed our stock transfer books as of such date (the “Final Record Date”). After such time, we are not recording any further transfers of our common stock, except pursuant to the provisions of a deceased stockholder’s will, intestate succession, or by operation of law and we will not issue any new stock certificates, other than replacement certificates. In addition, we will not be issuing any shares of our common stock for the outstanding stock options. As a result of the closing of our transfer books, it is anticipated that distributions, if any, made in connection with the dissolution will be made pro rata to the stockholders of record as of the Final Record Date. In accordance with our dissolution plan, we completed the voluntary delisting process from the Nasdaq Stock Market exchange so that suspension of trading occurred before the market opened on December 31, 2020 and official delisting of our stock occurred on January 7, 2021. On January 8, 2021, we filed a Form 15 notifying the SEC of deregistration of our common stock under Section 12(g) of the Exchange Act and suspension of our duty to file reports under Sections 13 and 15(d) of the Exchange Act. We do not anticipate participating in Over-The-Counter (“OTC”) trading related to our stock or economic interests in our stock.

Pursuant to our monetization strategy, we explored a variety of potential transactions, including a whole Company sale, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we analyzed, and continue to analyze, optimal mechanisms for returning value to stockholders in a tax-efficient manner, including share repurchases, cash dividends and other distributions of assets. Despite the challenges of the 2019 novel coronavirus (“COVID-19”), we made significant progress in our monetization strategy during 2020, including monetizing most of our key assets and resolving a longstanding legal issue as follows:

•In May 2020, pursuant to our Plan of Liquidation we made a liquidation distribution of all of our common stock in Evofem to PDL stockholders of record as of the close of business on May 15, 2020 (the “Evofem Record Date”).

•In August 2020, we entered into a settlement agreement (the “Settlement Agreement”) with related entities of Defined Diagnostics, LLC (f/k/a Wellstat Diagnostics, LLC) (“Wellstat Diagnostics” and, together with such related entities, the “Wellstat Parties”) resolving previously reported litigation relating to loans made to Wellstat Diagnostics by us

•In August 2020, we sold three royalty interests related to third party sales of Kybella®, Zalviso®, and Coflex® to SWK Funding, LLC (“SWK”), a wholly owned subsidiary of SWK Holdings Corporation

•In September 2020, we completed the previously announced sale of our interest in Noden DAC and Noden USA

•In October 2020, pursuant to our Plan of Liquidation we completed the previously announced spin-off of LENSAR, our majority-owned medical device company, whereby we made a liquidation distribution of all of our shares of LENSAR common stock to our stockholders as of September 22, 2020 (the “LENSAR Record Date”)

•In December 2020, we entered into a Capital Provision Agreement with Epps Investments LLC (“Epps”) regarding our previously announced Settlement Agreement with the Wellstat Parties whereby we sold all remaining amounts owed to us under the Settlement Agreement for consideration received

The Settlement Agreement with the Wellstat Parties provided for the payment of $7.5 million upon the signing of the Settlement Agreement, which has been received, and either (1) $5.0 million by February 10, 2021 and $55.0 million by July 26, 2021; or (2) $67.5 million by July 26, 2021. Under the terms of the Settlement Agreement, failure by the Wellstat Parties to make payment in full by July 26, 2021, authorized us to record judgment against the Wellstat Parties for an amount of $92.5 million or such lesser amount as may be owed under the Settlement Agreement.

Pursuant to the Capital Provision Agreement with Epps we received $51.4 million on December 31, 2020 in exchange for 100% of the payments or other property or value received by PDL on or after the date of the Capital Provision Agreement pursuant to the Settlement Agreement.

The proceeds from the sale of the three royalty interests to SWK totaled $4.35 million, 90% of which was received at the closing of the transaction. The remaining 10% is currently held in escrow against certain potential contingencies and is to be released on the one-year anniversary of the closing, subject to the satisfaction of any such potential contingencies.

On July 30, 2020, we signed a definitive agreement for the sale of our interest in Noden DAC and Noden USA to CAT Capital Bidco Limited (“Stanley Capital”). In accordance with the terms of the agreement, we expect to receive consideration of up to $52.8 million. Stanley Capital made an initial cash payment to us of $12.2 million on the September 9, 2020 closing date. We are also entitled to recover $0.5 million related to value-added tax (“VAT”) for inventory purchases from Novartis. The agreement provides for an additional $33.0 million to be paid to us in twelve equal quarterly installments from January 2021 to October 2023, of which the first installment payment has been received. An additional $3.9 million will be paid in four equal quarterly installments from January 2023 to October 2023. The agreement also provides for the potential for additional contingent payments to us. We are entitled to receive $2.5 million upon Stanley Capital or any of its affiliates entering into a binding agreement for a specified transaction within one year of the closing date. We are also entitled to 50% of a license fee from a third party distributor within 10 days of receipt by Noden. Upon closing, we recorded a gain of $0.2 million. In connection with the closing of the transaction, the guaranty agreement between Novartis and us which guaranteed certain payments owed to Novartis by Noden was terminated.

We intend to pursue monetization of our remaining assets in a disciplined and cost-effective manner to maximize returns to stockholders. At the same time, we recognize that accelerating the timeline to complete our monetization process, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide for faster returns to stockholders. While we are cognizant that an accelerated timeline may provide greater and faster returns to our stockholders, we also recognize that the duration and extent of the public health issues related to the COVID-19 pandemic make it possible that the timing of the sale of all or substantially all of our remaining assets may require additional time to execute or for us to pursue alternatives to the sale of these assets. For example, if a suitable offer to purchase the remaining royalty assets is not received prior to completing the dissolution process, they could be placed in a liquidating trust. The available proceeds from either the ongoing collection of royalty income or from the sale of the royalty assets would ultimately be distributed to our stockholders. We will continue to assess the market for our remaining assets to determine the appropriate time to sell them or to opt for alternative paths to return their value to our stockholders.

Following is a discussion of our current and historical segments.

Medical Devices

LENSAR

LENSAR is a commercial-stage medical device company focused on designing, developing and marketing an advanced femtosecond laser system for the treatment of cataracts and the management of pre-existing or surgically induced corneal astigmatism. LENSAR’s femtosecond laser uses proprietary advanced imaging and laser technology to customize planning and treatments, allowing faster visual recovery and improved outcomes, as compared to conventional cataract surgery, a more manual procedure combined with ultrasound, referred to as phacoemulsification. LENSAR has developed the LENSAR® Laser System, which is the only femtosecond cataract laser built specifically for refractive cataract surgery. At spin-off, LENSAR had over 95 granted patents in the United States and the rest of the world and over 55 pending patent applications in the United States and the rest of the world.

As noted above, on October 1, 2020 all outstanding shares of LENSAR common stock held by us were distributed to our holders of common stock as of the LENSAR Record Date. On October 1, each of our stockholders received 0.075879 shares of LENSAR common stock for every one share of our common stock held by such holders, based on the number of outstanding shares on the LENSAR Record Date. LENSAR continues to own and operate its femtosecond laser system business following completion of the distribution. As of October 1, 2020 LENSAR became an independent, publicly traded company listed on the Nasdaq Stock Market under the symbol “LNSR”.

Strategic Positions

Evofem

We invested $60.0 million in Evofem in the second quarter of 2019, representing approximately a 27% ownership interest in the company as of March 31, 2020. The transaction was structured in two tranches. The first tranche comprised $30.0 million, which was funded on April 11, 2019. We invested an additional $30.0 million in a second tranche on June 10, 2019, alongside two existing Evofem stockholders, who each invested an additional $10.0 million. On May 21, 2020 we distributed all of our 13,333,334 shares of common stock of Evofem to our stockholders of record on the Evofem Record Date, which represented approximately 26.7% of the outstanding shares of Evofem common stock as of the close of business on May 15, 2020. As of December 31, 2020, we continued to hold the warrants to purchase up to 3,333,334 shares of Evofem common stock.

Evofem is a commercial-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women’s sexual and reproductive health. Evofem is leveraging its proprietary Multipurpose Vaginal pH Regulator (MVP-R™) platform for its first commercial product Phexxi® (L-lactic acid, citric acid and potassium bitartrate) for hormone-free birth control. On May 22, 2020 Phexxi® was approved by the U.S. Food and Drug Administration for the prevention of pregnancy in women who choose to use on demand methods for their contraceptive needs. On September 8, 2020, Phexxi® was commercially launched in the United States.

As of June 30, 2020, the Strategic Positions segment was classified as discontinued operations.

Pharmaceutical

Noden

On July 1, 2016, our subsidiary, Noden DAC, entered into an asset purchase agreement (“Noden Purchase Agreement”) whereby it purchased from Novartis the exclusive worldwide rights to manufacture, market, and sell the Noden Products and certain related assets and assumed certain related liabilities (the “Noden Transaction”). Noden DAC and Noden USA, together, and including their respective subsidiaries represented deployed capital of $191.2 million.

Tekturna (or Rasilez outside of the United States) contains aliskiren, a direct renin inhibitor, for the treatment of hypertension. While indicated as a first line treatment, it is more commonly used as a third line treatment in those patients who are intolerant of angiotensin-receptor blockers (“ARBs”) or angiotensin converting enzyme inhibitors (“ACEIs”). Studies indicate that approximately 12% of hypertension patients are ARB/ACEI intolerant. Tekturna and Rasilez are not indicated for use with ARBs and ACEIs in patients with diabetes or renal impairment and are contraindicated for use by pregnant women. In March 2019, we launched an authorized generic (“AG”) form of Tekturna, aliskiren hemifumarate 150 mg and 300 mg tablets in the United States with the same drug formulation as Tekturna. The AG is distributed by Prasco, LLC d/b/a Prasco Laboratories.

Tekturna HCT is a combination of aliskiren and hydrochlorothiazide, a diuretic, for the treatment of hypertension in patients not adequately controlled by monotherapy and as an initial therapy in patients likely to need multiple drugs to achieve their blood pressure goals. It is not indicated for use with ACEIs and ARBs in patient with diabetes or renal impairment, or for use in patients with known anuria or hypersensitivity to sulfonamide derived drugs and is contraindicated for use by pregnant women.

On September 9, 2020, we sold 100% of our interests in our wholly owned subsidiaries Noden DAC and Noden USA to Stanley Capital.

As of March 31, 2020, the Pharmaceutical segment was classified as discontinued operations.

Income Generating Assets

The income generating assets included in continuing operations consist of (i) notes and other long-term receivables, (ii) equity investments and (iii) royalties from the Queen et. al patents.

Notes and Other Long-Term Receivables

We have entered into credit agreements with borrowers across the healthcare industry, under which we made available cash loans to be used by the borrower. Obligations under these credit agreements are typically secured by a pledge of substantially all the assets of the borrower and any of its subsidiaries. As of December 31, 2020, we had one note receivable transaction outstanding, CareView, which is summarized below:

CareView

Technology

CareView is a provider of products and on-demand application services for the healthcare industry by specializing in bedside video monitoring, archiving and patient care documentation systems and patient entertainment services.

Deal Summary

In June 2015, we entered into a credit agreement with CareView, whereby we made available to CareView up to $40.0 million in loans comprised of two tranches of $20.0 million each, subject to CareView’s attainment of specified milestones and under which we have a security interest in substantially all of CareView’s assets. In October 2015, we and CareView entered into an amendment of the credit agreement to modify certain definitions related to the first and second tranche milestones and we funded the first tranche of $20.0 million, net of fees, based on CareView’s attainment of the first milestone, as amended. The second $20.0 million tranche was not funded due to CareView’s failure to meet the funding milestone and we have no further funding obligation at this time. The outstanding borrowing under the credit agreement initially bore interest at the rate of 13.5% per annum payable quarterly in arrears. Principal repayment was to commence on the ninth quarterly interest payment date and continue in equal installments until final maturity of the loan in October 2020.

In February 2018, we entered into a modification agreement with CareView (the “February 2018 Modification Agreement”) whereby we agreed, effective as of December 28, 2017, to modify the credit agreement before remedies could otherwise have become available to us under the credit agreement in relation to certain obligations of CareView that would potentially not be met, including the requirement to make principal payments. Under the February 2018 Modification Agreement, we agreed that (i) a lower liquidity covenant would be applicable and (ii) principal repayment would be delayed for a period of up to December 31, 2018. In exchange for agreeing to these modifications, among other things, the exercise price of our warrants to purchase 4.4 million shares of common stock of CareView was reduced and, subject to the occurrence of certain events, CareView agreed to grant us additional equity interests. In each of September 2018, December 2018, May 2019, September 2019 and December 2019, we entered into amendments to the February 2018 Modification Agreement with CareView whereby we agreed to deferrals of principal repayments and interest payments. In the May 2019 amendment we also increased the interest rate to 15.5% and removed the liquidity covenant under the credit agreement. In January 2020 we agreed to a further amendment of the February 2018 Modification Agreement that deferred principal repayment and interest payments until April 30, 2020, which was conditioned upon CareView raising additional financing from third parties. Pursuant to further amendments to the February 2018 Modification Agreement, the Company has agreed to defer principal and interest payments until May 31, 2021.

Royalties from Queen et al. patents

We have been issued patents in the United States and elsewhere, covering the humanization of antibodies, which we refer to as our Queen et al. patents. Our Queen et al. patents, for which final patent expiry was in December 2014, covered, among other things, humanized antibodies, methods for humanizing antibodies, polynucleotide encoding in humanized antibodies and methods of producing humanized antibodies.

We previously entered into licensing agreements under our Queen et al. patents with numerous entities that are independently developing or have developed humanized antibodies. Under our licensing agreements, we are entitled to receive a flat-rate royalty based upon our licensees’ net sales of covered antibodies, although the royalties under these agreements have substantially ended.

Solanezumab is a Lilly-licensed humanized monoclonal antibody being tested in a study of older individuals who may be at risk of memory loss and cognitive decline due to Alzheimer’s disease. Lilly has characterized the study as an assessment of whether an anti-amyloid investigational drug in older individuals who do not yet show symptoms of Alzheimer's disease cognitive impairment or dementia can slow memory loss and cognitive decline. The study will also test whether solanezumab treatment can delay the progression of Alzheimer’s disease related brain injury on imaging and other biomarkers. If solanezumab is approved and commercialized pursuant to this clinical trial or another, we would be entitled to receive a royalty based on a "know-how" license for technology provided in the design of this antibody. The 2% royalty on net sales is payable for 12.5 years after the product's first commercial sale. The above described study is currently in Phase 3 testing with an estimated study completion date expected in January of 2023.

Competition

The underlying products associated with our income generating assets compete with existing products and are vulnerable to new branded or generic entrants in the marketplace.

Human Capital

As of December 31, 2020, we had 11 full-time employees managing our intellectual property, operations and other corporate activities, as well as performing certain essential functions of a public company. All of our employees were based in the United States. None of our employees are covered by a collective bargaining agreement, and we consider our relationship with our employees to be good. As a result of the dissolution process, our human capital resources objectives include, retaining, and incentivizing our management team and other employees as we continue our monetization strategy. For example, the Compensation Committee of the Board adopted a Wind Down Retention Plan in which our executive officers and other employees were eligible to participate. Under the Wind Down Retention Plan, participants have been eligible to earn a retention benefit in consideration for their continued employment with us as we continue our monetization strategy and dissolution process.

About PDL

We were incorporated under the laws of the state of Delaware in 1986 under the name Protein Design Labs, Inc. In 2006, we changed our name to PDL BioPharma, Inc. Our business previously included a biotechnology operation that was focused on the discovery and development of novel antibodies. We spun-off the operation to our stockholders as Facet Biotech Corporation (“Facet”) in December 2008. Our principal executive offices are located at 10585 Double R Boulevard, Reno, Nevada, 89521, (775) 832-8500, and our website address is www.pdl.com. The information in or accessible through our website is not incorporated into, and is not considered part of, this filing.

Available Information

We file electronically with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.

We make available free of charge on or through our website at www.pdl.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements, as well as amendments to these reports and statements, as soon as practicable after we have electronically filed such material with, or furnished them to, the SEC. You may

also obtain copies of these filings free of charge by calling us at (775) 832-8500. The information in or accessible through the SEC and our website is not incorporated into, and is not considered part of, this filing.

On January 8, 2021, we filed a Form 15 notifying the SEC of deregistration of our common stock under Section 12(g) of the Exchange Act and suspension of our duty to file reports under Sections 13 and 15(d) of the Exchange Act.

ITEM 1A. RISK FACTORS

RISK FACTORS

Set forth below and elsewhere in this Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission (SEC) are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by forward looking statements contained in this Annual Report on Form 10-K. You should carefully consider and evaluate all of the information included in this report, including the risk factors set forth. The following is not an exhaustive discussion of all of the risks facing our company. Additional risks not presently known to us or that we currently deem immaterial may impair our wind-down.

Risks Related to Our Dissolution

There can be no assurances as to the amount of distributions, if any, to be made to our stockholders.

We filed for dissolution in January of 2021 and intend to use the dissolution process under Delaware law to liquidate our remaining assets, settle claims and, if available, make liquidating distributions of cash or other property to our stockholders. However, our dissolution and the liquidation of our remaining assets will be subject to uncertainties, and it is possible that there will be no additional liquidating distribution made to our stockholders.

We intend to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the Delaware General Corporation Law (the DGCL) to, among other things, obtain an order from the Delaware Court of Chancery (the Court Order) establishing the amount and form of security for pending claims for which the Company is a party, contingent or unmatured contract claims for which the holder declined the Company’s offer of a security, and unknown claims that, based on facts known to the Company, are likely to arise or become known within five years from the filing of the Certificate of Dissolution (or such longer period of time, not to exceed ten years, as the Delaware Court of Chancery may determine), and pay or make reasonable provision for our uncontested known claims and expenses and establish reserves for other claims as required by the Court Order and the DGCL. We expect to distribute all of our remaining assets in excess of the amount to be used by us to pay claims and fund the reserves required by the Court Order and pay our operating expenses through the completion of the dissolution and winding-down process to our stockholders. The Court Order will reflect the Delaware Court of Chancery’s own determination as to the amount and form of security reasonably likely to be sufficient to provide compensation for all known, contingent and potential future claims against us. There can be no assurances that the Delaware Court of Chancery will not require us to withhold additional amounts in excess of the amounts that we believe are sufficient to satisfy our potential claims and liabilities. Accordingly, stockholders may not receive any distributions of our remaining assets, if any, for a substantial period of time.

In addition, there are numerous factors that could impact the amount of the reserves to be determined by the Court Order, and consequently the amount of cash initially available for distribution, if any, to our stockholders following the filing of the Certificate of Dissolution, including without limitation:

•whether any claim is resolved or barred pursuant to Section 280 of the DGCL;

•unanticipated costs relating to the defense, satisfaction or settlement of existing or future lawsuits or other claims threatened against us;

•whether unforeseen claims are asserted against us, in which case we would have to defend or resolve such claims and/or be required to establish additional reserves to provide for such claims;

•the amount of time it will take us to liquidate all of our remaining non-cash assets, and the amount of any costs and expenses that may be incurred in connection therewith;

•the amount of cash collected from amounts due from previous asset sales, such as our sale of Noden to Stanley Capital;

•the time to complete any tax audits for tax years impacted by amounts claimed under the CARES Act;

•the value, if any, we are able to obtain for our remaining non-cash assets in our monetization process;

•whether our royalty assets, for the next couple of years, and afterwards if retained in a liquidation trust, continue to perform as expected; and

•whether any of the expenses incurred in the winding-down process, including expenses of required personnel and other operating expenses (including legal, accounting and other professional fees) necessary to dissolve and liquidate the Company, are more or less than our estimates.

Further, the amount of any distributable proceeds and our ability to make distributions to our stockholders depend on our ability to execute our monetization strategy for our remaining non-cash assets, which is subject to significant risks and uncertainties, as further discussed in other risk factors herein.

In addition, as we wind down, we will continue to incur costs to manage the remaining business, such as salaries and other employee compensation, rental payments, insurance, and taxes, contractual obligations to current and former employees (e.g., true-up payments to holders of stock options that vested prior to the filing for dissolution) and other legal, accounting, financial advisory and consultant fees, which will reduce any amounts available for distribution to our stockholders.

As a result of these and other factors, we cannot assure you as to any amounts to be distributed to our stockholders in dissolution.

Liquidating distributions to stockholders could be substantially reduced and/or delayed due to uncertainty regarding the resolution of potential tax claims, litigation matters and other unresolved contingent liabilities of the Company.

Whether any remaining assets of the Company can be used to make liquidating distributions to stockholders would depend on whether claims for which we have set aside reserves are resolved or satisfied at amounts less than such reserves and whether a need has arisen to establish additional reserves. For example, we are subject to tax audits by the California Franchise Tax Board that have yet to be resolved, and the timing for resolution of such audits is uncertain. We cannot assure stockholders that our liabilities can be resolved for less than the amounts we have reserved, that unknown liabilities that have not been accounted for will not arise or the timing with respect to resolution of any such liabilities or claims. As a result, we may continue to hold back funds and delay additional liquidating distributions to stockholders.

We cannot predict the timing of the distributions to stockholders.

Under the DGCL, before a dissolved corporation may make any distribution to its stockholders, it must pay or make reasonable provision to pay all of its claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation. The precise amount and timing of any distributions to our stockholders will depend on and could be delayed or diminished due to many factors, including without limitation:

•whether a claim is resolved for more than the amount of reserve established for such claim pursuant to the Court Order;

•whether we are unable to resolve claims with creditors or other third parties, or if such resolutions take longer than expected;

•whether a creditor or other third party seeks an injunction against the making of additional distributions to stockholders on the basis that the amounts to be distributed are needed to satisfy our liabilities or other obligations to the extent not previously reserved for;

•whether due to new facts and developments, new claims, as the Board reasonably determines, require additional funds to be reserved for their satisfaction; and

•whether the expenses we incur in the winding-down process, including expenses of personnel required and other expenses (including legal, accounting and other professional fees) necessary to dissolve and liquidate the Company are more than anticipated.

As a result of these and other factors, it might take significant time to resolve these matters, and as a result we are unable to predict the timing of distributions, if any, made to our stockholders.

Our dissolution pursuant to the Plan of Dissolution may be disrupted and adversely impacted by the effects of natural disasters, political crises, public health crises, and other events outside of our control.

Natural disasters, such as adverse weather, fires, earthquakes, power shortages and outages, political crises, such as terrorism, war, political instability, or other conflict, criminal activities, public health crises, such as the COVID-19 pandemic and other disease epidemics and pandemics, and other disruptions or events outside of our control could negatively affect our operations and our ability to monetize our remaining assets or realize the estimated value of our net assets in liquidation. Any of these events may cause a delay in our ability to make distributions in dissolution, and may materially impact the amount of cash or value of other non-cash assets available to distribute to our stockholders, if any.

Our stockholders may be liable to our creditors for part or all of the amount received from us in our liquidating distributions if reserves are inadequate.

In dissolution we may establish a contingency reserve designed to satisfy any additional claims and obligations that may arise. Any contingency reserve may not be adequate to cover all of our claims and obligations. Under the DGCL, if we fail to create an adequate contingency reserve for payment of our expenses, claims and obligations, each stockholder could be held liable for payment to our creditors for claims brought during this three-year period after we filed the Certificate of Dissolution with the Secretary of State, up to the lesser of (i) such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve and (ii) the amounts previously received by such stockholder in dissolution from us and from any liquidating

trust or trusts. Accordingly, in such event, a stockholder could be required to return part or all of the distributions previously made to such stockholder in dissolution, and a stockholder could receive nothing from us under the Plan of Dissolution. Moreover, if a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amounts received could result in a situation in which such repayment does not result in a commensurate refund of such taxes paid. As a result, while we intend to use the protections of DGCL Sections 280 and 281(a), including having a court order approve distributions, it is important for us to retain sufficient funds through our dissolution to pay the expenses and liabilities actually owed to our creditors because if we fail to do so, each stockholder could be held liable for the repayment to creditors out of the amounts previously distributed to such stockholder from us or from any liquidating trust or trusts, up to the full amount actually received by such stockholder in our dissolution.

The directors and officers of the Company will continue to receive benefits from the Company during the dissolution.

During the dissolution, we will continue to indemnify each of our current and former directors and officers to the extent permitted under the DGCL and the Company’s certificate of incorporation, bylaws and agreements as in effect at the time of the filing of the Certificate of Dissolution.

Further stockholder approval will not be required in connection with the implementation of our Plan of Dissolution, including for the sale or disposition of any of our remaining assets.

Our Plan of Dissolution provides that we may sell our remaining assets after dissolution, as necessary to affect our Plan of Dissolution. Under our Plan of Dissolution, we will not seek and are not required to seek additional stockholder authorization of any future asset sale. As a result, the Board may authorize actions in implementing the Plan of Dissolution, including the terms and prices for the sale or disposition of our remaining assets, with which our stockholders may not agree.

Our common stock ceased to be traded at the time of our dissolution.

We closed our stock transfer books of our common stock after our dissolution became effective at approximately 4:00 p.m., Eastern time on January 4, 2021 (the “Final Record Date”). Therefore, shares of our common stock are no longer freely transferable. As a result of the closing of the stock transfer books, all liquidating distributions from a liquidating trust, if any, or from us after the Final Record Date will be made pro rata to the stockholders of record as of the Final Record Date.

We have not and do not intend to record any assignments or transfers of our common stock after the Final Record Date, other than as required by will, intestate succession or operation of law. We have been informed that after the Final Record Date some shares of our common stock have been traded under contractual obligations between the seller and purchaser of the stock, who negotiate and rely on themselves with respect to the allocation of stockholder proceeds arising from ownership of the shares. We are not facilitating or participating in the trading in our common stock or interests in proceeds from our liquidation. Accordingly, trading in our stock is highly speculative and the market for our stock is highly illiquid. As we are no longer an operating company, the only value underlying the trading price of our shares is the right to receive further distributions, if any, as part of the liquidation process. Because of the difficulty in estimating the amount and timing of the liquidating distributions and due to the other risk factors discussed herein, the economic interests derived from our common stock may be subject to significant volatility and may trade above or below the amount of any future liquidating distribution that may be made.

The loss of key personnel could adversely affect our ability to efficiently dissolve, liquidate and wind down.

We intend to rely on a few individuals in key management roles to dissolve, liquidate our remaining assets and wind-down operations. Loss of one or more of these key individuals could hamper the efficiency or effectiveness of these processes.

Our remaining licensees, borrowers and royalty-agreement counterparties may be unable to maintain regulatory approvals for their products, or to obtain regulatory approvals or favorable pricing for new products, and they may voluntarily remove products from marketing and commercial distribution. Any of such events, whether due to safety issues or other factors, could limit our revenues or return on investment. or our ability to generate expected returns from the monetization of such assets, including their sale, and reduce resulting distributions to our stockholders in dissolution.

Our licensees, borrowers and royalty-agreement counterparties are subject to stringent regulation with respect to product safety and efficacy by various international, federal, state and local authorities. Even if our licensees’, borrowers’ and royalty-agreement counterparties’ products receive regulatory approval, they will remain subject to ongoing FDA and other international regulations including, but not limited to, obligations to conduct additional clinical trials or other testing, changes to the product label, new or revised regulatory requirements for manufacturing practices, written advisements to physicians and/or a product recall or

withdrawal. Our licensees, borrowers and royalty-agreement counterparties may not maintain necessary regulatory approvals for their existing products. Moreover, the current political environment in the United States is focused on potential reductions in pricing for pharmaceutical and other healthcare products, which may negatively impact any existing or new products from which our revenues would be derived. We are unable to control the pricing strategies used by our licensees, borrowers and royalty-agreement counterparties, and if they fail to use appropriate pricing strategies, or receive negative reactions to their pricing strategies, it could negatively impact our revenues or return on investment.

In addition, communications from government officials regarding pricing for pharmaceutical and other health care products could have a negative impact on the value of the assets we intend to monetize, even if such communications do not ultimately impact our borrowers’ and royalty-agreement counterparties’ products. The occurrence of adverse events reported by any borrower or royalty-agreement counterparty may result in the revocation of regulatory approvals or decreased sales of the applicable product due to a change in physicians’ willingness to prescribe, or patients’ willingness to use the applicable product. Our borrowers and royalty-agreement counterparties could also choose to voluntarily remove licensed products from marketing and commercial distribution. Any value we may receive upon a potential transaction in furtherance of our monetization strategy in dissolution could be materially and adversely affected.

The value of our remaining income generating royalty assets may be dependent on the actions of unrelated third parties, which may negatively impact the value we are able to realize in dissolution.

In connection with our income generating assets, we are dependent, to a large extent, on third parties to enforce certain rights for our benefit. For example, Assertio (formerly Depomed), as the licensor of certain patents, retains various rights, including the contractual right to audit its licensees and to ensure those licensees are complying with the terms of the underlying license agreements. Assertio also retained full responsibility to protect and maintain the intellectual property rights underlying the licenses. While we have contractual rights to require Assertio to take action regarding certain of these rights, because Assertio’s economic interest in the license agreements is limited, it may not enforce or protect those rights as it otherwise would have had it retained the full economic interest in the payments under the license agreements.

Our royalty-agreement counterparties face significant market pressures with respect to their products, and the amount of revenues from their pharmaceutical products or medical devices, or from our income generating assets that we receive are subject to various competitive and market factors, including generic competitors, that may be outside of our control.

Our royalty-agreement counterparties face competition from other pharmaceutical companies. The introduction of new competitive products, including generics, may result in lost market share for our royalty-agreement counterparties, reduced use of their products, lower prices and/or reduced sales, any of which could reduce our royalty revenues, and have a material adverse effect on any realized value we may obtain in connection with the evaluation of potential transactions to monetize such remaining assets in dissolution.

The amounts we are able to realize from any transaction in furtherance of our monetization of our remaining assets, and the amount of cash or other assets we are able to distribute our stockholders in dissolution, will depend on many factors, including the following:

•the timing and availability of generic product competition for our royalty-agreement counterparties’ products;

•potential challenges or design-arounds to product, use or manufacturing related patents which provide exclusivity for products and assets before their expiration by generic pharmaceutical manufacturers;

•the size of the market for our royalty-agreement counterparties’ products;

•the extent and effectiveness of the sales and marketing and distribution support for our royalty-agreement counterparties’ products;

•the existence of novel or superior products to our royalty-agreement counterparties’ products;

•the availability of reduced pricing and discounts applicable to our royalty-agreement counterparties’ products;

•stocking and inventory management practices related to our royalty-agreement counterparties’ products;

•limitations on indications for which our royalty-agreement counterparties’ products can be marketed; the competitive landscape for approved products and developing therapies that compete with royalty-agreement counterparties’ products;

•the ability of patients to be able to afford our royalty-agreement counterparties’ products or obtain healthcare coverage that covers those products;

•acceptance of, and ongoing satisfaction with, our royalty-agreement counterparties’ products by the care providers, patients receiving therapy and third-party payors; or

•the unfavorable outcome (or potential thereof) of any litigation relating to our royalty-agreement counterparties’ business practices or products.

For example, in mid-2019, Bausch Health announced expected price decreases on Glumetza, a royalty-bearing product under our Assertio Royalty Agreement. These price decreases could negatively affect revenues and thus our royalties. Due to the uncertainties caused by changes in pricing by third parties that are outside our control, including as a result of generic competition, we may not be able to accurately estimate the impact on royalties on such sales paid to us for Glumetza or any other product.

We are also aware of a number of approved generic extended-release metformin products, which could further negatively affect Glumetza revenues.

Any of these factors may have a material and adverse effect on our ability to realize significant value for our remaining royalty assets and negatively affect the amount of cash or other assets we are able to distribute to our stockholders in dissolution.

Risks Related to Taxes

We may not be able to realize certain expected tax benefits.

During 2020, we engaged in certain transactions that may result in the recognition of ordinary tax losses. Such losses, through provisions of the CARES Act, could generate meaningful tax benefits to the Company as the CARES Act permits taxpayers to carry back five years any net operating losses arising in a taxable year beginning in 2018, 2019 or 2020. In connection with our monetization process, we have executed transactions that result in ordinary tax losses that could be applied to prior tax years in which PDL was a substantial tax payor. There can be no assurance that such tax benefits will be realized as expected. For example, in February 2021, a letter was sent to congressional leaders signed by 120 members of Congress that proposed retroactively repealing the net operating loss carry back provisions of the CARES Act. If these provisions were retroactively repealed, it would likely have a material adverse effect on the amount of tax benefits that may be available to us under the current provisions of the CARES Act. Any failure to obtain such expected tax benefits under the CARES Act would likely reduce the funds available for distribution to our stockholders.

U.S. Stockholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from us.

Distributions made pursuant to the Plan of Dissolution are intended to be treated as received by a U.S. stockholder in exchange for the U.S. stockholder’s shares of our common stock. Accordingly, the amount of any such distribution allocable to a block of shares of our common stock owned by the U.S. stockholder will reduce the U.S. stockholder’s tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be taxable as capital gain. Such gain generally will be taxable as long-term capital gain if the shares have been held for more than one year. Any tax basis remaining in a share of our common stock following the final liquidating distribution by the Company will be treated as a capital loss. The deductibility of capital losses is subject to limitations. U.S. stockholders should consult their tax advisors as to the particular tax consequences of our dissolution for them, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

The tax treatment of any liquidating distribution may vary from stockholder to stockholder.

We have not requested a ruling from the IRS with respect to the anticipated tax consequences of our complete dissolution and liquidation, and we will not seek an opinion of counsel with respect to the anticipated tax consequences of any liquidating distributions. If any of the anticipated tax consequences prove to be incorrect, the result could be increased taxation at the corporate or stockholder level, thus reducing the benefit to our stockholders and us from our dissolution and liquidation. Tax considerations applicable to particular stockholders may vary with and be contingent on the stockholder’s individual circumstances. Stockholders should consult with their own tax advisors for tax advice on our dissolution and liquidation’s impact on their taxes.

General Risk Factors

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions or data corruption could materially disrupt our operations and adversely affect our business and operating results.

We rely on our information technology systems to effectively manage all business activities and data, including accounting, financial and legal functions, asset management and business development. Our information technology systems are vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters, terrorist attacks, power losses, computer system

or data network failures, security breaches, data corruption and cyber-based attacks, including malicious software programs or other attacks, which have been attempted against us in the past. In addition, a variety of our software systems are cloud-based data management applications, hosted by third-party service providers whose security and information technology systems are subject to similar risks.

The failure to protect either our or our service providers’ information technology infrastructure could disrupt our entire operation or result in our inability to manage and monetize our remaining assets, increased overhead costs, loss or misuse of proprietary or confidential information, intellectual property or sensitive or personal information, all of which could have a material adverse effect on our business and affect the amount of cash or other assets we may be able to distribute to our stockholders in dissolution.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease approximately 1,750 square feet of office space in Reno, Nevada, which serves as our corporate headquarters. The lease expires in December 2022. Previously, we leased approximately 5,900 square feet of office space in Incline Village, Nevada, which served as our corporate headquarters until December 31, 2020 when the lease was terminated.

In July 2006, we entered into two leases and a sublease for facilities in Redwood City, California, which formerly served as our corporate headquarters and cover approximately 450,000 square feet of office space. Under the amendments to the leases entered into in connection with the spin-off of Facet, Facet was added as a co-tenant under the leases. As a co-tenant, Facet is bound by all of the terms and conditions of the leases. We and Facet are jointly and severally liable for all obligations under the leases, including the payment of rental obligations. The guarantee runs through December 2021. We also entered into a Co-Tenancy Agreement with Facet in connection with the spin-off and the lease amendments under which we assigned to Facet all rights under the leases, including, but not limited to, the right to amend the leases, extend the lease terms or terminate the leases, and Facet assumed all of our obligations under the leases. Under the Co-Tenancy Agreement, we also relinquished any right or option to regain possession, use or occupancy of these facilities. Facet agreed to indemnify us for all matters associated with the leases attributable to the period after the spin-off date and we agreed to indemnify Facet for all matters associated with the leases attributable to the period before the spin-off date. In addition, in connection with the spin-off, we assigned the sublease to Facet. In April 2010, Abbott Laboratories acquired Facet and later renamed the entity AbbVie Biotherapeutics, Inc. (“AbbVie”). To date, AbbVie has satisfied all obligations under the Redwood City leases.

We believe that our existing facilities are adequate to meet our business requirements for the reasonably foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The information set forth in Note 25, Legal Proceedings, to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report is incorporated by reference herein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On December 8, 2020, we formally notified the Nasdaq Stock Market, Inc. of our intent to delist the Company's common stock from the Nasdaq Global Select Market ("Nasdaq"). We filed a Form 25 (Notification of Removal from Listing) with the SEC and Nasdaq relating to the voluntary delisting of our common stock on December 28, 2020 and suspended trading of our common stock prior to the opening of trading on December 31, 2020. We filed a certificate of dissolution with the Delaware Secretary of State on January 4, 2021 (the “Final Record Date”) and instructed our transfer agent to close our stock transfer books at the close of business on this date. PDL's common stock was delisted effective on January 7, 2021. On January 8, 2021, we filed a Form 15 notifying the SEC of our deregistration of our common stock under Section 12(g) of the Exchange Act and suspension of our duty to file reports under Sections 13 and 15(d) of the Exchange Act.

As of January 6, 2021, we had approximately 86 common stockholders of record. Most of our outstanding shares of common stock are held of record by one stockholder, Cede & Co., as nominee for the Depository Trust Company. Many brokers, banks and other institutions hold shares of common stock as nominees for beneficial owners that deposit these shares of common stock in participant accounts at the Depository Trust Company. The actual number of beneficial owners of our stock is likely significantly greater than the number of stockholders of record; however, we are unable to reasonably estimate the total number of beneficial owners.

Dividends

On May 5, 2020, our board of directors approved a distribution of all of the Company’s shares of common stock of Evofem Biosciences, Inc. (“Evofem”) via a special one-time dividend to PDL stockholders. The Evofem shares were distributed on May 21, 2020 to PDL shareholders of record as of the close of business on May 15, 2020 (the “Evofem Record Date”). Based on the shares of PDL common stock outstanding as of the close of business on the Evofem Record Date, PDL stockholders were entitled to receive 0.11591985 shares of Evofem common stock for each share of PDL common stock held.

On September 10, 2020, our board of directors approved a distribution of all of the Company’s shares of common stock of LENSAR via a special one-time dividend to PDL stockholders. The LENSAR shares were distributed on October 2, 2020 to PDL shareholders of record as of the close of business on September 22, 2020 (the “LENSAR Record Date”). Based on the shares of PDL common stock outstanding as of the close of business on the LENSAR Record Date, PDL stockholders were entitled to receive 0.075879 shares of LENSAR common stock for each share of PDL common stock held.

Equity Compensation Plan Information

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under equity compensation plans.

Recent Sales of Unregistered Securities

There were no unregistered sales of equity securities during the period covered by this report.

Issuer purchases of Equity Securities

There were no repurchases of our common stock made by us in the three months ended December 31, 2020.

Comparison of Stockholder Returns

The line graph below compares the cumulative total stockholder return on our common stock between December 31, 2015, and December 31, 2020, with the cumulative total return of (i) the Nasdaq Biotechnology Index and (ii) the Nasdaq Composite Index over the same period. This graph assumes that $100.00 was invested on December 31, 2015, in our common stock at the closing sales price for our common stock on that date and at the closing sales price for each index on that date and that all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns and are not intended to be a forecast.

https://cdn.kscope.io/9f53bed5dab1fd3c67308b5e793182e3-pdli-20201231_g2.jpg


	12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020
PDL BioPharma, Inc.	$	100.00	$	61.71	$	79.76	$	84.42	$	94.46	$	95.29
Nasdaq Composite Index	$	100.00	$	108.87	$	141.13	$	137.12	$	187.44	$	271.64
Nasdaq Biotechnology Index	$	100.00	$	78.65	$	95.67	$	87.19	$	109.08	$	137.90

The information in this section shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Reserved.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Form 10-K.

Overview

Historically, we generated a substantial portion of our revenues through the license agreements related to patents covering the humanization of antibodies, which we refer to as the Queen et al. patents. In 2012, and in anticipation of declining revenues from the Queen et al. patents, we began providing alternative sources of capital through royalty monetization and debt facilities, and, in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products, first with our acquisition of branded prescription pharmaceutical drugs from Novartis in 2016 and, in 2017, with the acquisition of LENSAR, a medical device ophthalmology equipment manufacturing company. In 2019, we entered into a securities purchase agreement with Evofem pursuant to which we invested $60.0 million in a private placement of securities. These investments provided funding for Evofem’s pre-commercial activities for Phexxi®, its non-hormonal, on-demand prescription contraceptive gel for women.

Our Medical Devices segment consisted of revenue from the sale and lease of the LENSAR® Laser System, which included equipment, PIDs, procedure licenses, training, installation, warranty and maintenance agreements.

Our Strategic Positions segment consisted of an investment in Evofem (NASDAQ: EVFM). Our investment included shares of common stock and warrants to purchase additional shares of common stock.

Our Pharmaceutical segment consisted of revenue derived from the Noden Products.

In September 2019, we engaged financial and legal advisors and initiated a review of our strategy. This review was completed in December 2019. At such time, we disclosed that we planned to halt the execution of our growth strategy, cease making additional strategic transactions and investments and instead pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders (the “monetization strategy”). Pursuant to our monetization strategy, we did not expect to enter into any additional strategic investments. We further announced in December 2019 that we would explore a variety of potential transactions in connection with the monetization strategy, including a whole Company sale, divestiture of our assets, spin-offs of operating entities, merger opportunities or a combination thereof. Over the subsequent months, our board of directors (the “Board”) and management analyzed, together with our outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to the stockholders.

and proceeding to complete the dissolution process for our Company in accordance with the Delaware General Corporate Law. The filing of the certificate of dissolution occurred on January 4, 2021 and we closed our stock transfer books as of such date (the “Final Record Date”). After such time, we are not recording any further transfers of our common stock, except pursuant to the provisions of a deceased stockholder’s will, intestate succession, or by operation of law and we will not issue any new stock certificates, other than replacement certificates. In addition, we will not be issuing any shares of our common stock upon exercise of outstanding stock options. As a result of the closing of our transfer books, it is anticipated that distributions, if any, made in connection with the dissolution will be made pro rata to the stockholders of record as of the Final Record Date. In accordance with our dissolution plan, we completed the voluntary delisting process from the Nasdaq Stock Market exchange so that suspension of trading occurred before the market opened on December 31, 2020 and official delisting of our stock occurred on January 7, 2021. We do not anticipate participating in any OTC trading of our stock or economic rights in our stock.

Pursuant to our monetization strategy, we explored a variety of potential transactions, including a whole Company sale, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we analyzed, and continue to analyze, optimal mechanisms for returning value to stockholders in a tax-efficient manner, including share repurchases, cash dividends and other distributions of assets. Despite the challenges of COVID-19, we made significant progress in our monetization strategy during 2020, including monetizing most of our key assets and resolving a longstanding legal issue as follows:

•In May 2020, we made a liquidation distribution of all of our common stock in Evofem to our stockholders. As of December 31, 2020, we held warrants to purchase up to 3,333,334 shares of Evofem common stock with an exercise price of $6.38

•In August 2020, we entered into a settlement agreement (the “ Settlement Agreement”) with related entities of Defined Diagnostics, LLC (f/k/a Wellstat Diagnostics, LLC) ("Wellstat Diagnostics" and, together with such related entities, the "Wellstat Parties") resolving previously reported litigation relating to loans made to Wellstat Diagnostics by us

•In August 2020, we sold three royalty interests related to third party sales of Kybella®, Zalviso®, and Coflex®

•In September 2020, we completed the previously announced sale of our interest in Noden DAC and Noden USA

•In October 2020, we completed the previously announced spin-off of LENSAR whereby we made a liquidation distribution of all of our shares of LENSAR common stock to our stockholders as of September 22, 2020

The Capital Provision Agreement with Epps provided for the payment of $51.4 million, which was received on December 31, 2020, in exchange for 100% of the payments or other property or value received by PDL on or after the date of the Capital Provision Agreement pursuant to the Settlement Agreement.

The proceeds from the sale of the three royalty interests totaled $4.35 million, 90% of which was received at the closing of the transaction. The remaining 10% is currently held in escrow against certain potential contingencies and is to be released on the one-year anniversary of the closing, subject to the satisfaction of any such potential contingencies.

closing of the transaction, the guaranty agreement between Novartis and us which guaranteed certain payments owed to Novartis by Noden was terminated.

We intend to pursue monetization of our remaining assets in a disciplined and cost-effective manner to maximize returns to stockholders. At the same time, we recognize that accelerating the timeline to complete our monetization process, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide for faster returns to stockholders. While we are cognizant that an accelerated timeline may provide greater and faster returns to our stockholders, we also recognize that the duration and extent of the public health issues related to the COVID-19 pandemic make it possible that the timing of the sale of all or substantially all of our remaining assets may require additional time to execute or for us to pursue alternatives to the sale of these assets. For example, if a suitable offer to purchase the remaining royalty assets is not received prior to completing the dissolution process, they could be ultimately placed in a liquidating trust. The available proceeds from either the ongoing collection of royalty income or from the sale of the royalty assets would ultimately be distributed to our stockholders. We will continue to assess the market for our remaining assets to determine the appropriate time to sell them or to opt for alternative paths to return their value to our stockholders.

Critical Accounting Policies and Significant Estimates

The preparation of financial statements and related disclosures in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and the discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in its Consolidated Financial Statements and accompanying notes. Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this Form 10-K describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

While our significant accounting policies are more fully described in the notes to our Consolidated Financial Statements appearing elsewhere in this Form 10-K, management believes that the following accounting policies related to the liquidation basis of accounting, assets and liabilities held for sale, discontinued operations, notes receivable and other long-term receivables, inventory, intangible assets, convertible notes, product revenue, royalty rights - at fair value, and income taxes are critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

Liquidation Basis of Accounting

As a result of the approval of the Company’s stockholders to pursue dissolution of the Company pursuant to a plan of dissolution, the Company’s basis of accounting transitioned, effective September 1, 2020, from the going concern basis of accounting (“Going Concern Basis”) to the liquidation basis of accounting (“Liquidation Basis”) in accordance with Generally Accepted Accounting Principles. Under the Liquidation Basis, the values of the Company's assets and liabilities include management's estimate of income to be generated from the remaining assets until the anticipated date of sale, estimated sales proceeds, estimates for operating expenses and expected amounts required to settle liabilities. The estimated liquidation values for assets derived from future revenue streams and asset sales and the settlement of estimated liabilities are reflected on the Consolidated Statement of Net Assets in Liquidation. The actual amounts realized could differ materially from the estimated amounts.

Assets Held for Sale

Under the Going Concern Basis, assets and liabilities are classified as held for sale and presented separately on the balance sheet when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. The Pharmaceutical segment, Strategic Positions segment and certain royalty right assets within the Income Generating Assets segment are classified as held for sale. The royalty right assets that were classified as held for sale are Assertio, Viscogliosi Brothers, University of Michigan, AcelRx, and Kybella. The assets and liabilities held for sale are included on the Company’s Consolidated Balance Sheet as of December 31, 2019, as Assets held for sale and Liabilities held for sale.

Discontinued Operations

Discontinued operations comprise those activities that were disposed of during the period or that were classified as held for sale at the end of the period, represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes, and represent a strategic shift that has or will have a major effect on the Company’s operations and financial results. The profits and losses of the investments classified as held for sale, the Pharmaceutical segment, the Strategic Positions segment, and certain royalty assets noted above, are presented on the Consolidated Statements of Operations as discontinued operations. Depreciation and amortization of assets ceases upon designation as held for sale.

See Note 4, Discontinued Operations Classified as Assets Held for Sale, for additional information.

Notes Receivable and Other Long-Term Receivables

Under the Going Concern Basis, we accounted for our notes receivable at amortized cost, net of unamortized origination fees, if any, and adjusted for any impairment losses. Interest was accreted or accrued to “Interest revenue” using the effective interest method. When and if supplemental payments are received from certain of these notes and other long-term receivables, an adjustment to the estimated effective interest rate was affected prospectively.

We evaluated the collectability of both interest and principal for each note receivable or loan to determine whether it is impaired. A note receivable or loan was considered to be impaired when, based on available information and events, we determined it is probable that it would be unable to collect amounts due according to the existing contractual terms. When a note receivable or loan was considered to be impaired, the amount of loss was calculated by comparing the carrying value of the financial asset to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the estimated fair value of the underlying collateral, less costs to sell, if the loan was collateralized and we expected repayment to be provided solely by the collateral. Impairment assessments required significant judgments and were based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

We recorded interest on an accrual basis and recognized it as earned in accordance with the contractual terms of the applicable credit agreement, to the extent that the underlying note receivable or loan was not impaired and such amounts were expected to be collected. When a note receivable or loan became past due, or if management otherwise did not expect that principal, interest, and other obligations due would be collected in full, we generally placed the note receivable or loan on an impaired status and ceased recognizing interest income on that note receivable or loan. Any uncollected interest related to prior periods was reversed from income in the period that collection of the interest receivable is determined to be doubtful.

As of December 31, 2020, we had one note receivable investment with an aggregate carrying value of approximately $0.7 million, compared to two note receivable investments which we determined to be impaired as of December 31, 2019 with an aggregate carrying value and fair value of approximately $52.1 million and $57.3 million, respectively. We did not recognize any losses on extinguishment of notes receivable during the eight months ended August 31, 2020 or the years ended December 31, 2019 and 2018. There were no impairment losses on notes receivable for the eight months ended August 31, 2020. During the years ended December 31, 2019 and 2018, we recorded impairment losses of $10.8 million and $8.2 million, respectively, related to the CareView note receivable. For the eight months ended August 31, 2020 and the year ended December 31, 2019, we did not recognize any interest income for note receivable investments as all such note receivable investments were on an impaired status and no cash interest payments were received. For the year ended December 31, 2018, we recognized $2.3 million of interest revenue for the CareView note receivable investment as result of cash interest payments made during the fiscal year.

Inventory

Under the Going Concern Basis, inventory, which consisted of raw materials, work-in-process and finished goods, was stated at the lower of cost or net realizable value. We determined cost using the first-in, first-out method. Inventory levels were analyzed periodically and written down to their net realizable value if they had become obsolete, had a cost basis in excess of its expected net realizable value or were in excess of expected requirements. We analyzed current and future product demand relative to the remaining product shelf life to identify potential excess inventory. We built demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. The Company classified inventory as current on the Consolidated Balance Sheet when the Company expected inventory to be consumed for commercial use within the next twelve months.

Intangible Assets

Under the Going Concern Basis, intangible assets with finite useful lives consisted primarily of acquired product rights and acquired technology and were amortized on a straight-line basis over their estimated useful lives (five to 20 years). The estimated useful lives associated with finite-lived intangible assets were consistent with the estimated lives of the associated products. Such assets were reviewed for impairment when events or circumstances indicated that the carrying value of an asset may not be recoverable. An impairment loss was recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition were less than its carrying amount. The amount of any impairment loss was measured as the difference between the carrying amount and the fair value of the impaired asset.

Convertible Notes

Under the Going Concern Basis, we performed an assessment of all embedded features of a debt instrument to determine if (i) such features should be bifurcated and separately accounted for, and (ii) if bifurcation requirements are met, whether such features should be classified and accounted for as equity or debt instruments. If the embedded feature met the requirements to be bifurcated and accounted for as a liability, the fair value of the embedded feature is measured initially, included as a liability on the Consolidated Balance Sheet, and re-measured to fair value at each reporting period. Any changes in fair value were recorded in the Consolidated Statement of Operations. We monitored, on an ongoing basis, whether events or circumstances could give rise to a change in our classification of embedded features.

We issued $150.0 million of December 2021 Notes with an option to settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we separated the principal balance between the fair value of the liability component and the common stock conversion feature using a market interest rate for a similar nonconvertible instrument at the date of issuance.

On September 17, 2019, we exchanged $86.1 million aggregate principal of December 2021 Notes for an identical aggregate original principal amount of December 2024 Notes, plus a cash payment of $70.00 for each $1,000 principal amount exchanged (the “September 2019 Exchange Transaction”). We issued the December 2024 Notes with an option to settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we separated the principal balance between the fair value of the liability component and the common stock conversion feature using a market interest rate for a similar nonconvertible instrument at the date of issuance.

The September 2019 Exchange Transaction qualified as a debt extinguishment.

In accordance with the accounting guidance for an extinguishment of convertible debt instruments with a cash conversion feature, we were required to allocate the fair value of the consideration transferred between the liability component and the equity component. To calculate the fair value of the debt immediately prior to derecognition, the carrying value was recalculated in a manner that reflected the estimated market interest rate for a similar nonconvertible instrument at the date of issuance.

In connection with the September 2019 Exchange Transaction, we entered into a capped call transaction with a counterparty on similar terms and conditions as the capped call transaction entered into between the two parties when the December 2021 Notes were issued. We evaluated the capped call transaction under authoritative accounting guidance and determined that it should be accounted for as a separate transaction and classified as a net reduction to Additional paid-in capital within stockholders’ equity with no recurring fair value measurement recorded. Also with the September 2019 Exchange Transaction, we and the counterparty unwound a portion of the capped call entered into when the December 2021 Notes were issued as they were no longer scheduled to mature in 2021. The proceeds from the unwind of the capped call, which reflected the value of the options outstanding at the time of the September 2019 Exchange Transaction and the average share price of our common stock, were included as an increase to Additional paid-in capital within stockholders’ equity.

On December 12, 2019, we initiated the repurchase of $119.3 million in aggregate principal amount of our December 2021 and December 2024 convertible notes for $97.9 million in cash and 13.4 million shares of our common stock in privately negotiated transactions (the “December Exchange Transaction”). The closing of the December Exchange Transaction occurred on December 17, 2019. We determined that the repurchase of the principal amount should be accounted for as a partial extinguishment of the December 2021 Notes and December 2024 Notes and a loss on extinguishment was recorded at closing of the transaction. The loss on extinguishment included the derecognition of a proportional share of the deferred issuance costs. In connection with the December Exchange Transaction, we unwound a corresponding portion of the capped call related to the convertible notes and

repurchased 3.2 million shares of our common stock from the capped call counterparty. The common stock repurchased was reflected as a decrease to Retained earnings within stockholders’ equity. The proceeds from the capped call were included as an increase to Additional paid-in capital within stockholders’ equity. In furtherance of our monetization strategy, we expect to continue to repurchase or satisfy obligations relating to our convertible notes.

During the eight months ended August 31, 2020, the Company repurchased $5.4 million in aggregate principal amount of its December 2021 Notes and $10.5 million in aggregate principal amount of its December 2024 notes for cash.

In December 2020, the Company repurchased an additional $2.2 million par value of December 2021 Notes and $1.0 million par value of December 2024 Notes in a privately negotiated transactions for cash.

The estimated fair value of the liability components at the date of issuance for the December 2021 Notes and December 2024 Notes were determined using valuation models and are complex and subject to judgment. Significant assumptions within the valuation models included an implied credit spread, the expected volatility and dividend yield of our common stock and the risk-free interest rate for notes with a similar term.

Product Revenue

General

In accordance with ASC 606, revenue under the Going Concern Basis, was recognized from the sale of products and services when a customer obtained control of such promised products and services. The amount of revenue recognized reflected the consideration to which we expected to be entitled to receive in exchange for these products and services. A five-step model was utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract’s performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the performance obligations were satisfied.

The following is a description of principal activities, separated by reportable segments, from which we generated revenue.

Medical Devices

We principally generated revenue in our Medical Devices segment from the sale and lease of the LENSAR® Laser System, which included equipment, PIDs, procedure licenses, and training, installation, warranty and maintenance agreements.

For bundled packages, we accounted for individual products and services separately if they were distinct - i.e. if a product or service is separately identifiable from other promises in the bundled package and if the customer can benefit from it on its own or with other resources that are readily available to the customer. The LENSAR® Laser system, training and installation services were one performance obligation. All other elements are separate performance obligations. PIDs, procedure licenses, warranty and maintenance services were also sold on a stand-alone basis.

As we both sold and leased the LENSAR® Laser System, the consideration (including any discounts) was first allocated between lease and non-lease components and then allocated between the separate products and services based on their stand-alone selling prices. The stand-alone selling prices for the PIDs and procedure licenses were determined based on the prices at which we separately sold the PIDs and procedure licenses. The LENSAR® Laser System and warranty stand-alone selling prices were determined using the expected cost plus a margin approach.

For LENSAR® Laser System sales, we recognized revenue in product revenue when a customer took possession of the system. This usually occurred after the customer signs a contract, LENSAR installed the system, and LENSAR performed the requisite training for use of the system. For LENSAR® Laser System leases, we recognized revenue in Product revenue over the length of the lease in accordance with ASC Topic 840, Leases through December 31, 2018 and recognized Product revenue in accordance with ASC Topic 842, Leases, after January 1, 2019.

The LENSAR® Laser System requires both a PID and a procedure license to perform each procedure. We recognized revenue for PIDs in product revenue when the customer took possession of the PID. PIDs were sold by the case. We recognized revenue for procedure licenses in product revenue when a customer purchased a procedure license from the web portal. Typically, consideration for PIDs and procedure licenses was considered fixed consideration except for certain customer agreements that provided for tiered volume discount pricing which was considered variable consideration.

We offered an extended warranty that provided additional services beyond the standard warranty. We recognized revenue from the sale of extended warranties in product revenue over the warranty period. Customers had the option of renewing the warranty period, which was considered a new and separate contract.

Income Generating Assets

Royalty Rights - At Fair Value

Under the Going Concern Basis, we accounted for our investments in royalty rights at fair value with changes in fair value presented in earnings. The fair value of the investments in royalty rights was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. For each arrangement, we are entitled to royalty payments based on revenue generated by the net sales of the product.

Under the Going Concern Basis, these assets are classified as Level 3 assets within the fair value hierarchy, as our valuation estimates utilize significant unobservable inputs, including estimates. Critical estimates may include probability and timing of future sales of the related products, product demand and market growth assumptions, inventory target levels, product approval and pricing assumptions. Factors that could cause a change in estimates of future cash flows include a change in estimated market size, market share of the products on which we receive royalties, a change in pricing strategy or reimbursement coverage, a delay in obtaining regulatory approval, changes to forecast volume and pricing as a result of generic competition, a change in dosage of the product, and a change in the number of treatments.

Under the Going Concern Basis, the changes in the estimated fair value from investments in royalty rights along with cash receipts in each reporting period are presented together on our Consolidated Statements of Operations as a component of revenue under the caption, “Royalty rights - change in fair value.” Realized gains and losses on Royalty Rights were recognized as they were earned and when collection was reasonably assured. Royalty Rights revenue was recognized over the respective contractual arrangement period. Transaction-related fees and costs were expensed as incurred.

Income Taxes

The provision for income taxes is determined using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items are reflected in the financial statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any interest and penalties on uncertain tax positions are included within the tax provision.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law at the end of March 2020 and contains numerous forms of economic stimulus, including Small Business Association guaranteed loans and certain income tax provisions. The CARES Act, among other provisions, permits Net Operating Loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes at the 35% corporate tax rate then in effect.

Recently Issued Accounting Standards

See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements of this Form 10-K for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2020.

Recent Developments

Dissolution

On January 4, 2021, we filed a Certificate of Dissolution with the State of Delaware and closed our stock transfer books. On January 7, 2021, we were formally de-listed from Nasdaq.

Convertible Senior Notes

In connection with the Fundamental Change Repurchase Right resulting from the suspension of trading of the Company’s common stock on Nasdaq prior to the opening of business on December 31, 2020, holders of 142 December 2021 Notes tendered their notes for repurchase, which occurred on February 17, 2021.

In connection with the Fundamental Make-Whole Change resulting from the suspension of trading of the Company’s common stock on Nasdaq prior to the opening of business on December 31, 2020, holders of 50 December 2021 Notes exercised their conversion rights. Such notes will be retired for cash.

CareView

As further discussed in Note 9, Notes and Other Long-Term Receivables, to the Consolidated Financial Statements included in Item 8, the first principal payment and the scheduled interest payment due December 31, 2018 and those that followed that were previously deferred until January 31, 2021 were subsequently deferred until May 31, 2021 under additional amendments.

Summary of 2020, 2019 and 2018 Financial Results

•Our net loss for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 was $77.3 million, $70.4 million and $68.9 million, respectively and included net loss from discontinued operations of $34.9 million, $13.6 million and $36.1 million, respectively;

•At December 31, 2020, we had cash and cash equivalents of $126.8 million as compared with $169.0 million at December 31, 2019, excluding, as of December 31, 2019, cash and cash equivalents classified in assets held for sale of $24.5 million;

•At December 31, 2020, we had $386.9 million in net assets in liquidation;

•At December 31, 2019, we had $717.2 million in total assets, including $447.9 million classified as assets held for sale; and $123.9 million in total liabilities at December 31, 2019, including $31.2 million classified as liabilities held for sale.

Revenues

A summary of our revenues for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:


	Eight Months Ended August 31,		Year Ended December 31,		Change from		Year Ended December 31,		Change from
(Dollars in thousands)	2020		2019		Prior Year %		2018		Prior Year %
Revenues:
Product revenue, net (1)	$	10,946	$	22,331	(51)	%	$	15,928	40	%
Lease revenue	2,139		5,072		(58)	%	5,903		(14)	%
Service revenue	2,126		3,339		(36)	%	2,821		18	%
Royalty rights - change in fair value	—		—		N/M		(30)		N/M
Royalties from Queen et al. patents	—		9		N/M		4,536		(100)	%
Interest revenue	—		—		N/M		2,337		N/M
License and other	110		(45)		344	%	533		(108)	%
Total revenues	$	15,321	$	30,706	(50)	%	$	32,028	(4)	%

___________________

N/M Not meaningful

(1) Our Product revenue, net consisted entirely of revenue from our Medical Devices segment. We recorded Product revenue from our Medical Devices segment from our LENSAR product sales which include LENSAR® Laser Systems, PIDs, procedures, training, installation, warranty and maintenance services.

For the eight months ended August 31, 2020, compared to the year ended December 31, 2019

Our total revenues decreased by 50%, or $15.4 million, for the eight months ended August 31, 2020, when compared to the year ended December 31, 2019. The decrease was primarily due to:

•the shorter measurement period in the current year period due to the transition to the Liquidation Basis on September 1, 2020,

•a decrease in Product, Lease and Service revenues from our Medical Devices segment due to the COVID-19 pandemic reducing demand for elective surgical procedures in North America and the rest of the world, and

•no Queen et al. patent revenue in the current year period, partially offset by

•higher license and other revenue.

Revenue from our Medical Devices segment for the eight months ended August 31, 2020 was $15.2 million, a decrease of 51% compared to the year ended December 31, 2019. The decrease is attributable to lower net revenues in both North America and the rest of the world. The decrease was primarily driven by the impact of the COVID-19 pandemic on the Medical Devices segment and the associated decline in elective surgical procedures in addition to the shorter measurement period in the current year.

Revenue from our Income Generating Assets segment for the eight months ended August 31, 2020 was $0.1 million, an increase of $0.1 million when compared to the year ended December 31, 2019. The increase was primarily due to:

•higher license and other revenue, partially offset by

•decreasing royalties from the Queen et al. patents as the patents have expired.

For the year ended December 31, 2019, compared to December 31, 2018

Our total revenues decreased by 4%, or $1.3 million, for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The decrease was primarily due to:

•lower Queen et al. patent revenue in the current period

•decreased interest revenue related to the CareView note receivable asset, and

•lower license and other revenue, partially offset by

•an increase in product revenue from sales of the LENSAR Laser Systems in our Medical Devices segment.

Revenue from our Medical Devices segment for the year ended December 31, 2019 was $30.7 million, an increase of 25% compared to the year ended December 31, 2018. The increase is attributable to higher net revenues in both North America and the rest of the world, with the majority of the increase outside of North America.

Revenue from our Income Generating Assets segment for the year ended December 31, 2019 was $(36,000), a decrease of 100%, or $7.4 million, when compared to the same period in 2018. The decrease was due to:

•the absence of royalties from the Queen et al. patents as the patents have expired,

•the absence of interest revenue recognized from our CareView note receivable in 2019, and

•lower license and other revenue.

The following table summarizes the percentage of our total revenues earned, which individually accounted for 10% or more of our total revenues for the eight months ended August 31, 2020 and one or more of the years ended December 31, 2019 and 2018:


	Eight Months Ended August 31,		Year Ended December 31,
Product Name	2020		2019		2018


Biogen	—	%	—	%	14	%
LENSAR	99	%	100	%	77	%

Operating Expenses

A summary of our operating expenses for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 is presented below:


	Eight Months Ended August 31,			Year Ended December 31,			Change from		Year Ended December 31,			Change from
(Dollars in thousands)	2020			2019			Prior Year %		2018			Prior Year %
Costs of product revenue (excluding intangible amortization)	$	6,626		$	17,276		(62)	%	$	13,555		27	%
Amortization of intangible assets	841			1,290			(35)	%	1,294			—	%
Severance and retention	24,713			—			N/M		—			N/M
General and administrative	29,695			38,334			(23)	%	33,700			14	%
Sales and marketing	3,322			6,806			(51)	%	6,341			7	%
Research and development	4,374			7,350			(40)	%	2,759			166	%

Asset impairment loss	—			10,768			(100)	%	8,200			31	%


Change in fair value of contingent consideration	—			—			N/M		369			N/M
Total operating expenses	$	69,571		$	81,824		(15)	%	$	66,218		24	%
Percentage of total revenues	454		%	266		%			207		%

___________________

N/M Not meaningful

For the eight months ended August 31, 2020, compared to the year ended December 31, 2019

Total operating expenses decreased by 15%, or $12.3 million for the eight months ended August 31, 2020, when compared to the year ended December 31, 2019. The decrease was primarily a result of:

•lower general and administrative expenses, primarily due to a shorter measurement period due to our transition to the Liquidation Basis,

•a decrease in research and development expenses in our Medical Devices segment primarily due to the exclusive licensing of intellectual property from a third party in 2019 for $3.5 million in cash,

•lower cost of product revenue, due to decreased sales in our Medical Devices segment, as previously discussed,

•lower sales and marketing expenses in our Medical Devices segment due to the impact of COVID-19, and

•a $10.8 million impairment loss on the CareView note receivable recorded in 2019 with no comparable adjustment in the current year period, partially offset by

•severance and retention recorded in the current year period with no corresponding expense in the prior year period, including provisions under our Wind Down Retention Plan, which, as a result of the adoption of the Plan of Liquidation in the first quarter of 2020, accelerated the vesting of outstanding stock awards for employees.

For the year ended December 31, 2019, compared to December 31, 2018

Total operating expenses increased by 24%, or $15.6 million for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The increase was primarily a result of:

•an increase in research and development expenses in our Medical Devices segment primarily due to the exclusive licensing of intellectual property from a third party for $3.5 million in cash for use in developing its next generation technology,

•higher cost of product revenue, due to increased sales in our Medical Devices segment, with the majority of the increase related to increased system sales in 2019,

•an increase in our general and administrative expenses, as detailed below,

•an increase in our sales and marketing expenses in our Medical Devices segment, and

•a $10.8 million impairment loss on the CareView note receivable recorded in 2019 compared to the $8.2 million impairment loss on the CareView note receivable recorded in 2018, partially offset by

•a decline in the expense recorded for the change in fair value of contingent consideration.

General and administrative expenses for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 by segment are summarized in the tables below:


	Eight Months Ended August 31, 2020
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	2,464	$	8,633	$	11,097
Salaries and wages (including taxes)	1,666		4,468		6,134
Bonuses (including accruals)	410		1,890		2,300
Equity	388		2,275		2,663
Asset management	—		5,299		5,299
Business development	—		650		650
Accounting and tax services	2,221		4,156		6,377
Other professional services	369		2,365		2,734
Other	1,184		2,354		3,538
Total general and administrative	$	6,238	$	23,457	$	29,695


	Year Ended December 31, 2019
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	4,109	$	16,656	$	20,765
Salaries and wages (including taxes)	1,883		6,277		8,160
Bonuses (including accruals)	1,260		3,643		4,903
Equity	966		6,736		7,702
Asset management	—		2,041		2,041
Business development	—		1,282		1,282
Accounting and tax services	759		4,400		5,159
Other professional services	403		1,970		2,373
Other	1,713		5,001		6,714
Total general and administrative	$	6,984	$	31,350	$	38,334


	Year Ended December 31, 2018
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	3,627	$	10,204	$	13,831
Salaries and wages (including taxes)	1,871		6,193		8,064
Bonuses (including accruals)	991		(203)		788
Equity	765		4,214		4,979
Asset management	—		5,040		5,040
Business development	—		1,168		1,168
Accounting and tax services	39		4,288		4,327
Other professional services	825		1,921		2,746
Other	1,399		5,189		6,588
Total general and administrative	$	5,890	$	27,810	$	33,700

Non-operating Expense, Net

A summary of our non-operating expense, net, for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:


	Eight Months Ended August 31,		Year Ended December 31,		Change from		Year Ended December 31,		Change from
(Dollars in thousands)	2020		2019		Prior Year %		2018		Prior Year %
Interest and other income, net	$	608	$	6,030	(90)	%	$	6,065	(1)	%
Interest expense	(996)		(11,404)		(91)	%	(12,157)		(6)	%

Gain on sale of intangible assets	—		3,476		N/M		—		N/M

(Loss) gain on investments	(5,576)		—		N/M		764		N/M

Loss on exchange and extinguishment of convertible notes	(606)		(8,430)		(93)	%	—		N/M

Total non-operating expense, net	$	(6,570)	$	(10,328)	(36)	%	$	(5,328)	94	%

___________________

N/M Not meaningful

For the eight months ended August 31, 2020, compared to the year ended December 31, 2019

Total non-operating expense, net, decreased by 36% from $10.3 million for the year ended December 31, 2019 to $6.6 million for the eight months ended August 31, 2020, primarily due to:

•lower interest expense in conjunction with the extinguishment of a substantial portion of our convertible notes, and

•a larger loss on the exchange and extinguishment of convertible notes in the prior period, partially offset by

•a decrease in interest and other income due to lower cash balances in the current period,

•a decrease in the value of our investment in AEON, and

•a gain recognized in the prior year on the sale of our Direct Flow Medical, Inc. (“Direct Flow Medical”) intangible assets.

For the year ended December 31, 2019, compared to December 31, 2018

Total non-operating expenses, net, increased by 94%, or $5.0 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. Non-operating expense, net, increased due to:

•the loss on the exchange and extinguishment of a portion of our December 2021 Notes and December 2024 Notes, partially offset by

•the decrease in interest expense due to the repurchase of some of our convertible notes, and

•the gain recognized in 2019 on the sale of our Direct Flow Medical, Inc. intangible assets.

Income Taxes

Income tax benefit from continuing operations for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 was $17.8 million, $4.4 million and $6.8 million, respectively, which resulted primarily from applying the federal statutory income tax rate to loss before income taxes from continuing operations. The tax rate of 29.2% for the eight months ended August 31, 2020 differs from the statutory tax rate of 21% primarily as a result of net operating loss carryback under the CARES Act. The tax rate of 7.2% in 2019 and 17.0% in 2018 differs from the statutory tax rate of 21% primarily as a result of the increase in our valuation allowance in both years and, for 2019, the increase in our unrecognized tax benefits.

During 2020, the amount of our unrecognized tax benefits increased by $1.5 million. The future impact of the unrecognized tax benefits of $85.8 million, if recognized, is comprised of $32.6 million, which would affect the effective tax rate, and $53.2 million, which would result in adjustments to deferred tax assets and our valuation allowance.

Estimated interest and penalties associated with unrecognized tax benefits increased our income tax expense in the Consolidated Statements of Operations by $1.0 million during the eight months ended August 31, 2020, $1.6 million during the year ended December 31, 2019 and $1.0 million during the year ended December 31, 2018. Interest and penalties associated with

unrecognized tax benefits accrued on the balance sheet were $11.2 million, $9.7 million and $8.0 million as of December 31, 2020, 2019 and 2018, respectively.

The Company’s U.S. federal income tax returns are subject to examination for the tax years 2017 forward, In general, our state and local income tax returns are subject to examination by tax authorities for tax years 2000 forward. We are currently under income tax examination by the State of California for tax years 2009 through 2018. The timing of the resolution of the income tax examination is highly uncertain, and the amount ultimately paid, if any, upon resolution of the issues raised by the taxing authority may differ materially from the amounts accrued for each year. We do not anticipate any material change to the amount of our unrecognized tax benefit over the next 12 months.

Assets held for sale and discontinued operations

The Strategic Positions segment, Pharmaceutical segment and the royalty right assets in the Income Generating Assets segment have been classified as held for sale and reported as discontinued operations. The operating results from discontinued operations are presented separately in the Company’s Consolidated Statements of Operations as discontinued operations. Components of amounts reflected in Loss from discontinued operations are as follows:


	Eight Months Ended August 31,		Year Ended December 31,
(in thousands)	2020		2019		2018
Revenues
Product revenue, net	$	29,479	$	55,093	$	80,796
Royalty rights - change in fair value	(8,804)		(31,042)		85,287
Total revenues	20,675		24,051		166,083
Operating expenses
Cost of product revenue (excluding intangible asset amortization and impairment)	17,576		36,343		34,906
Amortization of intangible assets	389		5,016		14,536
General and administrative	6,105		7,264		11,720
Sales and marketing	257		1,675		10,800
Research and development	—		(41)		196
Impairment of intangible assets	—		22,490		152,330
Change in fair value of anniversary payment and contingent consideration	—		—		(42,000)
Total operating expenses	24,327		72,747		182,488
Operating loss from discontinued operations	(3,652)		(48,696)		(16,405)
Non-operating expense (income), net
Equity affiliate - change in fair value	(25,365)		36,402		—
Loss on classification as held for sale	(28,904)		—		—
Total non-operating expense (income), net	(54,269)		36,402		—
Loss from discontinued operations before income taxes	(57,921)		(12,294)		(16,405)
Income tax (benefit) expense from discontinued operations	(23,006)		1,303		19,689
Loss from discontinued operations	$	(34,915)	$	(13,597)	$	(36,094)

The following tables provides a summary of activity with respect to our royalty rights assets in discontinued operations for the eight months ended August 31, 2020 and the year ended December 31, 2019:


	Eight Months Ended August 31, 2020
			Change in
(in thousands)	Cash Royalties		Fair Value		Total
Assertio	$	29,926	$	(18,209)	$	11,717
VB	612		(9,408)		(8,796)
U-M	4,355		(2,948)		1,407

AcelRx	194		(12,952)		(12,758)

KYBELLA	42		(416)		(374)
	$	35,129	$	(43,933)	$	(8,804)


	Year Ended December 31, 2019
			Change in
(in thousands)	Cash Royalties		Fair Value		Total
Assertio	$	72,225	$	(45,699)	$	26,526
VB	966		(518)		448
U-M	5,664		(5,197)		467

AcelRx	307		(57,428)		(57,121)
KYBELLA	110		(1,472)		(1,362)
	$	79,272	$	(110,314)	$	(31,042)

The adjustment to the fair value of the AcelRx royalty asset in the second quarter of 2019 was due to the slower than expected adoption of Zalviso® since its initial launch relative to our estimates and the increased variance noted between our forecast model and actual results in the second quarter of 2019. We engaged a third-party expert in the second quarter of 2019 to reassess the market and expectations for the product. Key findings from the third-party study included: the post-surgical PCA (Patient-Controlled Analgesia) market being smaller than previously forecasted; the higher price of the product relative to alternative therapies, the product not being used as a replacement for systemic opioids and the design of the delivery device, which is pre-filled for up to three days of treatment, which limited its use for procedures with anticipated shorter recovery times.

The adjustment to the fair value of the Assertio royalty asset in the fourth quarter of 2019 was due to a decrease in the sales forecast for the Assertio products. We engaged a third-party expert in the fourth quarter of 2019 to reassess the market and expectations for the royalty asset. Key findings from the third-party study included: an anticipated decrease in the Glumetza net sales forecast due to an accelerated shift in the channel mix resulting in a substantial decline in net selling prices, particularly in the fourth quarter of 2019 and beyond, as previously announced by Bausch Health and the delayed launch dates of the extended release products in the Assertio royalty asset portfolio outside of the United States.

Revenue from our Pharmaceutical segment for the eight months ended August 31, 2020 was $29.5 million, a decrease of 46% when compared to the year ended December 31, 2019. All revenues from our Pharmaceutical segment were derived from sales of the Noden Products. The decrease in revenue from our Pharmaceutical segment reflects a shorter measurement period as well as lower net revenues in the United States and the rest of the world. The decrease in revenue from our Pharmaceutical segment in the United States for the eight months ended August 31, 2020 reflects the introduction of our authorized generic of Tekturna and a third-party generic of aliskiren late in the first quarter of 2019. The decrease in revenue for the rest of the world is due to lower sales volume of Rasilez in certain territories.

Revenue from our Pharmaceutical segment for the year ended December 31, 2019 was $55.1 million, a decrease of 32% when compared to the same period in 2018. The decrease in revenue from our Pharmaceutical segment reflects lower net revenues in the United States and the rest of the world. In particular, the decrease in revenue from our Pharmaceutical segment in the United States for the year ended December 31, 2019 reflects the introduction of our authorized generic form of Tekturna and a third-party generic form of aliskiren during the year ended December 31, 2019. The decrease in revenue for the rest of the world is due to lower sales volume of Rasilez in certain territories. This increase in cost of goods sold, compared to the prior year is due to the higher percentage of authorized generic sales in the current period and costs associated with the amended Novartis supply

agreement. Sales and marketing expenses have decreased substantially while the portion of general and administrative expenses attributable to the Pharmaceutical segment decreased as well. Intangible assets amortization expense decreased after Noden’s intangible assets were impaired at June 30, 2018.

Expenses decreased in our Pharmaceutical segment by 70%, or $50.0 million for the eight months ended August 31, 2020, when compared to the year ended December 31, 2019. The decrease was primarily a result of:

•a shorter measurement period in the current year,

•lower cost of sales due to decreased sales in the current year period,

•lower amortization expense for the Noden intangible assets in 2020 resulting from the accounting for discontinued operations, and

•lower sales and marketing expenses.

Expenses decreased in our Pharmaceutical segment by 61%, or $110.4 million for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The decrease was primarily a result of:

•a $22.5 million impairment of the Noden intangible asset in the current year compared to a $152.3 million impairment in 2018,

•lower amortization expense for the Noden intangible assets in 2019 resulting from the impairment recorded in 2018 due to the increased probability of a third-party generic form of aliskiren being launched in the United States,

•lower sales and marketing expenses reflecting the cost savings from the change in our marketing strategy to a non-personal promotion strategy for the Noden Products in anticipation of a launch of a third-party generic form of aliskiren. This non-personal promotion strategy was subsequently discontinued upon the launch of our authorized generic form of Tekturna in the first quarter of 2019, partially offset by,

•the favorable adjustment to the Noden acquisition related contingent consideration, which was first reduced in the second quarter of 2018 prompted by the increased probability of a third-party generic form of aliskiren being launched in the United States and subsequently eliminated in the fourth quarter of 2018 when the launch was imminent.

Net Loss per Share

Net loss per share for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:


	Eight Months Ended August 31,		Year Ended December 31,
	2020		2019		2018

Net loss per share - basic:
Continuing operations	$	(0.36)	$	(0.48)	$	(0.22)
Discontinued operations	$	(0.30)	$	(0.11)	$	(0.25)
Net loss attributable to PDL’s shareholders per basic share	$	(0.66)	$	(0.59)	$	(0.47)

Net loss per share - diluted:
Continuing operations	$	(0.36)	$	(0.48)	$	(0.22)
Discontinued operations	$	(0.30)	$	(0.11)	$	(0.25)
Net loss attributable to PDL’s shareholders per diluted share	$	(0.66)	$	(0.59)	$	(0.47)

Liquidity and Capital Resources

In February 2020, our Board approved the Plan of Liquidation. In August 2020, we received stockholder approval to dissolve our Company under Delaware law and in January 2021 we filed a certificate of dissolution in Delaware. Our liquidity and capital resource needs in dissolution primarily consist of managing the successful wind down of our business and distributing the remaining net proceeds to our stockholders,

We have previously financed our operations primarily through royalty and other license-related revenues, public and private placements of debt and equity securities, interest income on invested capital and cash generated from pharmaceutical and medical device product sales. During 2020, we also generated cash from the sale of several assets in our portfolio, including our

Pharmaceutical segment and certain royalty rights assets included in our Income Generating Assets’ segment. We plan to finance our operations in the near term primarily through existing cash, from our remaining royalty rights assets until such assets are sold or placed in a liquidating trust and from additional cash proceeds from the sale of one or more of the assets in our portfolio.

In addition, we expect to generate additional cash from the recovery under the CARES Act of previous taxes paid and from the collection of additional amounts owed from prior assets sales, primarily the sale of our Pharmaceutical segment.

In September 2020, we sold our interests in Noden DAC and Noden USA which comprised our Pharmaceutical segment. Upon closing, we were released of our guarantee to Novartis under Noden’s supply agreement. Under the terms of the sale of our interests in Noden DAC and Noden USA, we received proceeds of $12.2 million on September 9, 2020, the closing date of the transaction. We are also entitled to recover $0.5 million related to VAT for inventory purchases from Novartis. The agreement provides for an additional $33.0 million to be paid to the us in twelve equal quarterly installments from January 2021 to October 2023, of which the first installment has been received. An additional $3.9 million will be paid in four equal quarterly installments from January 2023 to October 2023. The agreement also provides for the potential for additional contingent payments to us. We are entitled to receive $2.5 million upon Stanley Capital or any of its affiliates entering into a binding agreement for a specified transaction within one year of the closing date. We are also entitled to 50% of a license fee from a third party distributor within 10 days of receipt by Noden.

Our future capital requirements primarily relate to the costs to wind down the Company, including expenses to manage the remaining business, such as salaries and other employee compensation, rental payments, insurance, and taxes, contractual obligations to current and former employees (e.g., true-up payments to holders of stock options that vested prior to the filing for dissolution) and other legal, accounting, financial advisory and consultant fees, which will reduce any amounts available for distribution to our stockholders.

On December 9, 2019, we announced that our Board authorized the repurchase of issued and outstanding shares of our common stock and convertible notes up to an aggregate value of $200.0 million pursuant to a share repurchase program. On December 16, 2019, we announced that our Board approved a $75.0 million increase to this repurchase program. Repurchases under this program were eligible to be made from time to time in the open market or in privately negotiated transactions and funded from our working capital. Common stock and convertible note repurchases were also eligible to be made under a trading plan under Rule 10b5-1, which would permit shares and convertible notes to be repurchased when we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The 10b5-1 plan was terminated on May 31, 2020 in consideration of the impact and uncertainty introduced by the COVID-19 pandemic on our monetization process and no common stock was repurchased after this date. All shares of common stock repurchased under our repurchase program were retired and restored to authorized but unissued shares of common stock. All convertible notes repurchased under the program were retired as will any additional convertible notes that may be repurchased prior to their scheduled maturity on December 1, 2021.

Our debt service obligations consist of interest payments and repayment of our December 2021 Notes. As of December 31, 2020 approximately $2.3 million in aggregate principal amount of December 2021 Notes outstanding of which $1.9 million par value was repurchased prior to December 31, 2021 but pending settlement. We may continue to repurchase the remaining outstanding December 2021 Notes with cash on hand.

We had cash and cash equivalents in the aggregate of $126.8 million and $169.0 million at December 31, 2020 and 2019, respectively, representing a decrease of $42.2 million. The decrease was primarily attributable to the repurchase of the December 2021 Notes and December 2024 Notes and the repurchase of stock, partially offset by cash received from royalties, cash received from the sale of the Wellstat receivable (including the subsequent sale of the Settlement Agreement) and the sale of the Noden entities and certain royalty rights assets.

We believe that cash on hand and cash generated from the above-described sources, net of operating expenses, debt service and income taxes, will be sufficient to fund our wind-down operations until all net proceeds are distributed to our stockholders.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2020:


	Payments Due by Period
(in thousands)	Less than 1 year		1-3 years		3-5 years		Thereafter		Total
Operating leases 1	$	37	$	38	$	—	$	—	$	75
Convertible notes 2	412		—		—		—		412

Total contractual obligations	$	449	$	38	$	—	$	—	$	487

_____________________________

1 Amounts represent the lease for our offices in Reno, Nevada and do not include estimated remaining lease payments guaranteed under the Redwood City lease discussed below.

2 Amount represents estimated remaining principal and cash interest payments due on the December 2021 Notes and excludes amounts paid before December 31, 2020 for an unsettled trade totaling $1.9 million.

Our liability for uncertain tax positions was $35.3 million as of December 31, 2020, all of which has been excluded from the table above due to the uncertainty in the timing of the settlement of these positions.

The above table excludes any contractually committed wind down payments due to stock option holders discussed under Guarantees below as the amount and timing of such payments, if any, is uncertain.

Purchase Obligations

After the sale of Noden and the spin-off of LENSAR, we no longer have any purchase obligations and were released from all of our guarantees for purchase obligations.

Guarantees

Redwood City Lease Guarantee

In connection with the spin-off of Facet in December 2008, we entered into amendments to the leases for our former facilities in Redwood City, California, under which Facet was added as a co-tenant and a Co-Tenancy Agreement, under which Facet agreed to indemnify us for all matters related to the leases attributable to the period after the spin-off date. In April 2010, Abbott Laboratories acquired Facet and later renamed the entity AbbVie Biotherapeutics, Inc. (“AbbVie”). If AbbVie were to default under its lease obligations, we could be held liable by the landlord as a co-tenant, and, thus, we have in substance guaranteed the payments under the lease agreements for the Redwood City facilities. As of December 31, 2020, the total lease payments for the duration of the guarantee, which runs through December 2021, are approximately $11.3 million. For additional information regarding our lease guarantee, see Note 16, Commitments and Contingencies.

Wind Down Payments to Stock Option Holders

On December 21, 2019, the Compensation Committee of the Board adopted a Wind Down Retention Plan in which our executive officers and other employees who are participants in the Company’s Severance Plan are eligible to participate. The Wind Down Retention Plan provides for equitable adjustments to outstanding stock options held by participants to ensure such participants realize the same benefits provided to shareholders in the event one or more cash or other distributions become payable to shareholders. Consistent with the existing terms of the Equity Plan, in the event one or more cash or other distributions are paid to shareholders, the exercise price of outstanding stock options will be reduced on a dollar-for-dollar basis to reflect the per share value of such cash or other distributions. In the event that the Company declares cash or other distributions that, in the aggregate, exceed the difference between the exercise price of an outstanding stock option and the par value of the underlying shares ($0.01), the holder of such stock option will be entitled to receive from the Company a cash payment in an amount equal to the number of shares subject to such stock option multiplied by the per share amount of the cash or other distribution that exceeds the difference between exercise price of the outstanding option and the par value of the underlying shares (a “true-up payment”). As of January 4, 2021, the date we filed our Certificate of Dissolution, the Company was unable to issue stock for any purpose, including to cover the exercise of employee options, and as a result such options became unexercisable. For a full discussion regarding the Wind-Down Retention Plan, including benefits conferred on employee option holders post-dissolution, please see Item 11.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitive Financial Instruments

Our exposure to market risk for changes in interest rates relates primarily to our excess cash investments and our convertible notes.

Our excess cash investments consist of Rule 2a-7 money market funds and had a fair value of approximately $51.2 million at December 31, 2020 and $131.3 million at December 31, 2019. Due to the short duration of these investments, with a maximum weighted average maturity of 60 days or less, if market interest rates were to increase or decrease by 1%, there would be no material impact on the fair value of our portfolio.

As of December 31, 2020, our convertible notes consisted of $2.3 million in principal of the December 2021 Notes with an annual fixed interest rate of 2.75%, of which $1.9 million par value was acquired before December 31, 2020 in a transaction that remained unsettled at year end. The aggregate fair value of our convertible notes was estimated to be $33.9 million at December 31, 2019. At December 31, 2019 our convertible notes consisted of the December 2021 Notes and the December 2024 Notes. The December 2024 Notes had an annual fixed interest rate of 2.75% and a principal accretion rate of 2.375% per year. Changes in interest rates do not affect interest expense on fixed rate debt. While changes in interest rates do not impact the amount of interest we pay, these obligations are subject to interest rate risk because changes in interest rates would affect the fair values of fixed rate debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements


Item			Page
Report of Independent Registered Public Accounting Firm			38
Statement of Net Assets in Liquidation as of December 31, 2020			40
Consolidated Balance Sheet at December 31, 20 1 9			41
Statement of Changes in Net Assets in Liquidation for the four months ended December 31, 2020			42
Consolidated Statements of Operations for the eight months ended August 31, 20 20 , and the years ended December 31, 201 9 and 201 8			43
Consolidated Statements of Comprehensive Loss for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018			44
Consolidated Statements of Stockholders’ Equity for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018			45
Consolidated Statements of Cash Flows for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018			46
Notes to Consolidated Financial Statements			48

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of PDL BioPharma, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of PDL BioPharma, Inc. and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2019 and for the period from January 1, 2020 to August 31, 2020, and audited the consolidated statement of net assets in liquidation as of December 31, 2020, and the related consolidated statement of changes in net assets in liquidation for the period from September 1, 2020 to December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 and for the period from January 1, 2020 to August 31, 2020, its net assets in liquidation as of December 31, 2020, and the changes in its net assets in liquidation for the period from September 1, 2020 to December 31, 2020 in conformity with accounting principles generally accepted in the United States of America applied on the bases described below.

Basis of Accounting

As discussed in Notes 2 and 3 to the consolidated financial statements, the stockholders of the Company approved a plan of liquidation on August 19, 2020, and the Company determined liquidation is imminent. As a result, the Company changed its basis of accounting on September 1, 2020 from the going concern basis to a liquidation basis. This matter is also discussed below as a critical audit matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Liquidation Basis of Accounting

As described above and in Notes 2 and 3 to the consolidated financial statements, as a result of the August 19, 2020 approval by the Company’s stockholders to file for dissolution pursuant to a plan of dissolution, it was determined that liquidation was imminent and the Company’s basis of accounting transitioned from the going concern basis of accounting to the liquidation basis of accounting on September 1, 2020, in accordance with generally accepted accounting principles. Under the liquidation basis,

the remeasurement of the Company's assets and liabilities include management's estimates and assumptions of: (i) income to be generated from the remaining assets until the anticipated date of sale, (ii) sales proceeds to be received for these assets at the time of sale, (iii) operating expenses to be incurred; and, (iv) amounts required to settle liabilities. The estimated liquidation values for assets derived from future revenue streams and asset sales and the settlement of liabilities are reflected on the consolidated statement of net assets in liquidation. Under the liquidation basis, the accounting estimates that require management’s most significant, difficult and subjective judgments include the determination that the liquidation was imminent, the estimated sales proceeds of assets, estimated settlement amounts of liabilities, the estimated revenue and operating expenses that are projected during dissolution, and discount rates. Additional significant estimates under the liquidation basis include the recognition and measurement of amounts recoverable under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The total effect of adoption of the liquidation basis of accounting was a $21,339 thousand increase from consolidated net equity as of August 31, 2020 to net assets in liquidation as of September 1, 2020. The changes in net assets and liabilities in liquidation from September 1, 2020 to December 31, 2020 was a reduction of $59,634 thousand.

The principal considerations for our determination that performing procedures relating to the Company’s adoption of the liquidation basis of accounting is a critical audit matter are the significant judgment by management when determining (i) the point at which liquidation was imminent, and (ii) remeasuring the values of assets and liabilities, which included significant assumptions related to sales proceeds of assets, settlement amounts of liabilities, revenue and operating expenses, discount rates and amounts recoverable under the CARES Act. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to (i) management’s judgments around applying the liquidation basis to the consolidated financial statements and determining the point at which liquidation was imminent, and (ii) the remeasurement of certain assets and liabilities. Also, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for and evaluating management’s judgments around applying the adoption of the liquidation basis of accounting and the point at which liquidation was imminent; (ii) testing management’s process for developing the estimates and assumptions used in the remeasurement of certain assets and liabilities as of September 1, 2020 and December 31, 2020; (iii) testing the completeness and accuracy of the data used by management in the developing the estimates, and (iv) evaluating the reasonableness of the significant assumptions used by management for certain assets related to (1) the estimated sales proceeds, (2) amounts estimated to be recoverable under the CARES act, (3) the estimated revenue and operating expenses that are projected during dissolution and (4) the discount rates; for certain liabilities related to (1) the amounts estimated to be paid in settlement, (2) the estimated revenue and operating expenses that are projected during dissolution, and (3) the discount rates; and (v) evaluating the adequacy of the Company’s disclosures. The work of management’s specialist was used in performing the procedures to evaluate the reasonableness of enterprise values. Evaluating management’s assumptions related to the estimated revenue and operating expenses that are projected during dissolution, estimated proceeds from sales of certain assets, and the estimated amounts to be paid in settlement of certain liabilities involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Company; (ii) the consistency with external industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of valuation methods and evaluating the reasonableness of the discount rates and amounts recoverable under the CARES Act.


						/s/ PricewaterhouseCoopers LLP

San Francisco, California

March 26, 2021

We have served as the Company’s auditor since 2014.

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION

(In thousands)


	December 31,
	2020
	(Note 2)
	(Under Liquidation Basis of Accounting)
Assets
Current assets:
Cash and cash equivalents	$	126,842

Receivables from asset sales	40,574

Royalty assets	220,023
Income tax receivable	91,753
Other assets	5,768
Total assets	$	484,960

Liabilities
Current liabilities:
Accounts payable	$	531
Uncertain tax positions	43,742
Compensation and benefit costs	9,337
Lease guarantee	10,700
Costs to sell assets	3,997
Other accrued liquidation costs	27,268
Convertible notes payable	2,466
Total liabilities	$	98,041

Net assets in liquidation	$	386,919

See accompanying notes.

PDL BIOPHARMA, INC.

CONSOLIDATED BALANCE SHEET

(In thousands, except per share amounts)


	December 31,
	2019
	(Note 2)
	(Under Going Concern Basis of Accounting)
Assets
Current assets:
Cash and cash equivalents	$	168,982


Accounts receivable, net	6,559
Notes receivable	52,583

Inventory	8,061
Assets held for sale (Note 4)	70,366
Prepaid and other current assets	7,344
Total current assets	313,895
Property and equipment, net	2,560




Notes and other receivables, long-term	827

Intangible assets, net	13,186

Long-term assets held for sale (Note 4)	377,491
Other assets	9,247
Total assets	$	717,206

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,675

Accrued liabilities	11,923

Liabilities held for sale (Note 4)	31,095





Total current liabilities	45,693
Convertible notes payable	27,250

Liabilities held for sale, long-term (Note 4)	120
Other long-term liabilities	50,865
Total liabilities	123,928

Commitments and contingencies (Note 16)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding	—
Common stock, par value $0.01 per share, 350,000 shares authorized; 124,303 shares issued and outstanding at December 31, 2019	1,243
Additional paid-in capital	(78,875)


Retained earnings	670,832
Total PDL’s stockholders’ equity	593,200
Noncontrolling interests	78
Total stockholders’ equity	593,278
Total liabilities and stockholders’ equity	$	717,206

See accompanying notes.

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(In thousands)


	(Note 2)
	(Under Liquidation Basis of Accounting)
Net assets in liquidation, at September 1, 2020	$	446,553

Changes in assets and liabilities in liquidation:

Decrease in liquidation value of royalty assets	(12,696)
Decrease in receivables from asset sales	(8,328)
Decrease in liquidation value of notes receivable	(44,920)
Decrease in other assets	(70,976)
Increase in income tax receivable	56,081
Decrease in estimated costs to sell assets	4,058
Increase in uncertain tax positions	(4,385)
Increase in accrued liquidation costs	(12,911)
Decrease in compensation and benefit costs	11,882
Decrease in other liabilities and accounts payable	22,561
Total changes in net assets in liquidation	(59,634)

Net assets in liquidation, at December 31, 2020	$	386,919

See accompanying notes.

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Eight Months Ended August 31,		Year Ended December 31,
	2020		2019		2018
	(Under Going Concern Basis of Accounting)
Revenues
Product revenue, net	$	10,946	$	22,331	$	15,928
Lease revenue	2,139		5,072		5,903
Service revenue	2,126		3,339		2,821
Royalty rights - change in fair value	—		—		(30)
Royalties from Queen et al. patents	—		9		4,536
Interest revenue	—		—		2,337
License and other	110		(45)		533
Total revenues	15,321		30,706		32,028
Operating expenses
Cost of product revenue (excluding intangible asset amortization)	6,626		17,276		13,555
Amortization of intangible assets	841		1,290		1,294
Severance and retention	24,713		—		—
General and administrative	29,695		38,334		33,700
Sales and marketing	3,322		6,806		6,341
Research and development	4,374		7,350		2,759


Asset impairment loss	—		10,768		8,200


Change in fair value of anniversary payment and contingent consideration	—		—		369
Total operating expenses	69,571		81,824		66,218
Operating loss from continuing operations	(54,250)		(51,118)		(34,190)
Non-operating expense, net
Interest and other income, net	608		6,030		6,065
Interest expense	(996)		(11,404)		(12,157)

Gain on sale of intangible assets	—		3,476		—

(Loss) gain on investments	(5,576)		—		764
Loss on exchange and extinguishment of convertible notes	(606)		(8,430)		—

Total non-operating expense, net	(6,570)		(