UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported): November 10,
2010
PDL
BioPharma, Inc.
(Exact
name of Company as specified in its charter)
000-19756
(Commission
File Number)
|
Delaware
|
94-3023969
|
|
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
|
Incorporation)
|
932
Southwood Boulevard
Incline
Village, Nevada 89451
(Address
of principal executive offices, with zip code)
(775)
832-8500
(Company’s
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the Company under any of the following
provisions:
|
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Item
2.02 Results of Operations and Financial Condition.
On
November 10, 2010, PDL BioPharma, Inc. (the “Company”) issued a press release
announcing the financial results for the third quarter and nine months ended
September 30, 2010. A copy of this earnings release is attached as Exhibit 99.1
hereto. The Company will host an earnings call and webcast on
November 10, 2010 during which the Company will discuss its financial results
for the third quarter and nine months ended September 30, 2010.
Item
7.01 Regulation FD Disclosure.
On
November 10, 2010, the Company distributed to analysts covering or interested in
covering the Company’s securities a summary of certain information regarding the
Company’s licensed products, earnings, dividend payments, debt exchange and
ongoing litigation (the “Information Sheet”) to assist those analysts in valuing
the Company’s securities. A copy of the Information Sheet is attached hereto as
Exhibit 99.2.
Limitation
of Incorporation by Reference
In
accordance with General Instruction B.2. of Form 8-K, the information in this
report, including the exhibits, is furnished pursuant to Items 2.02 and 7.01 and
shall not be deemed to be “filed” for the purpose of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that section.
Cautionary
Statements
This
filing includes “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. Important factors
that could impair the Company’s royalty assets or business are disclosed in the
“Risk Factors” contained in the Company’s 2009 Annual Report on Form 10-K and
other periodic reports filed with the Securities and Exchange Commission. All
forward-looking statements are expressly qualified in their entirety by such
factors. We do not undertake any duty to update any forward-looking statement
except as required by law.
Item
9.01 Financial Statements and Exhibits.
|
Exhibit
No.
|
Description
|
|
|
99.1
99.2
|
Press
Release, dated November 10, 2010
Information
Sheet, dated November 10, 2010
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
| PDL BIOPHARMA, INC. | |||
| (Company) | |||
|
|
By:
|
/s/ Christine R. Larson | |
| Christine R. Larson | |||
| Vice President and Chief Financial Officer | |||
Dated: November
10, 2010
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
|
|
99.1
99.2
|
Press
Release, dated November 10, 2010
Information
Sheet, dated November 10, 2010
|
|
Cris
Larson
|
Jennifer
Williams
|
|
Cook
Williams Communications
|
|
|
775-832-8505
|
360-668-3701
|
|
Cris.Larson@pdl.com
|
jennifer@cwcomm.org
|
PDL
BioPharma Announces Third Quarter 2010 Financial Results
INCLINE
VILLAGE, NV, November 10, 2010
– PDL BioPharma, Inc. (PDL) (NASDAQ: PDLI) today reported financial
results for the third quarter and nine months ended September 30,
2010.
Financial
Results for the Third Quarter Ended September 30, 2010
Revenues
for the third quarter of 2010 were $86.4 million, a 21 percent increase when
compared with $71.4 million for the same period in 2009. Revenue growth for the
third quarter of 2010 over the same period in 2009 was primarily driven by
increased second quarter 2010 sales by the Company’s licensees of Avastin® and
Herceptin®, which are marketed by Genentech and Roche; Lucentis®, which is
marketed by Genentech and Novartis; and Tysabri®, which is marketed by Elan and
Biogen Idec. PDL received royalties for these product sales in the third quarter
of 2010.
General
and administrative expenses for the third quarter of 2010 were $11.1 million
compared with $5.3 million for the third quarter of 2009. Significant expense
items in the third quarter of 2010 were legal fees of $8.7 million, compensation
and benefits of $1.0 million, professional service fees of $0.5 million and
stock-based compensation expense of $0.2 million.
Non-operating
expenses were $12.1 million for the third quarter of 2010 compared with $2.6
million for the third quarter of 2009. Included in non-operating expense
for 2010 is a loss of $2.4 million associated with the conversion of the
Company’s 2.75% Convertible Subordinated Notes due 2023 (the 2023 Notes) and
interest expense of $9.9 million. In the third quarter of 2009, the
Company recorded a gain of $0.3 million on the repurchase of a portion of its
2.00% Convertible Senior Notes due 2012 (the 2012 Notes) and interest expense of
$3.1 million. The increase in interest expense is attributable to the
10.25% Non-recourse Notes due 2015 issued in November 2009 (the Non-recourse
Notes) that have a current principal balance of $225.0 million.
Net
income for the third quarter of 2010 was $40.2 million, or $0.24 per diluted
share compared with net income of $46.4 million, or $0.29 per diluted share, for
the same period in 2009.
Financial
Results for the Nine Months Ended September 30, 2010
Revenues
for the nine months ended September 30, 2010 were $268.8 million, compared with
$259.9 million for the same period in 2009. General and administrative expenses
for the nine months ended September 30, 2010 were $29.3 million compared to
$15.5 million for the same period in 2009.
Non-operating
expenses for the nine months ended September 30, 2010 were $52.4 million
compared with $7.7 million for the same period in 2009. Included in
non-operating expense for the nine months ended September 30, 2010 are $18.7
million in costs associated with the retirement or conversion of the 2023
Notes. Included in the nine months ended September 30, 2009 are gains
associated with the repurchase of a portion of the 2012 Notes of $0.8 million
and a portion of the 2023 Notes of $0.7 million.
Net
income for the first nine months of 2010 was $116.3 million, or $0.67 per
diluted share, compared to $161.1 million, or $0.97 per diluted share for the
same period in 2009. Adjusting for gains or losses on retirement or
conversion of convertible debt, non-GAAP net income for the nine months ended
September 30, 2010 totaled $133.4 million, or $0.77 per diluted share, compared
with non-GAAP net income of $160.1 million, or $0.96 per diluted share for the
same period in 2009.
Net cash
provided by operating activities for the first nine months of 2010 was $154.3
million compared with $132.8 million for the first nine months of 2009. At
September 30, 2010, PDL had cash, cash equivalents and short-term investments of
$227.2 million compared with $303.2 million at December 31, 2009, a decrease
which can be primarily attributed to the retirement of the 2023 Notes, the
payment of the April dividend and the $75 million repayment of the Company’s
Non-recourse Notes partially offset by cash provided by operations.
Exchange
of 2.00% Senior Convertible Notes due 2012
As
previously announced, the Company completed an exchange of $92.0 million in
aggregate principal of the 2012 Notes in separate, privately negotiated
transactions with the note holders. Pursuant to the exchange transactions,
the note holders received $92.0 million in aggregate principal of new 2.875%
Convertible Senior Notes due February 15, 2015 (the 2015 Notes). As part
of the transaction, the Company also placed an additional $88.0 million in
aggregate principal of the 2015 Notes. Following the exchange
transactions, $136.0 million of the 2012 Notes remain outstanding. The
conversion rate for the 2015 Notes is 140.571 shares of common stock per $1,000
principal amount of the 2015 Notes or $7.11 per share of common
stock.
The
following summarizes the Company’s debt outstanding at December 31, 2009 and at
November 1, 2010.
|
Debt Outstanding
(In millions)
|
||||||||
|
11/1/2010
|
12/31/2009
|
|||||||
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2.75%
Convertible Debt
|
||||||||
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Put
Option - August 2010
|
$ | - | $ | 200 | ||||
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2.00%
Convertible Debt
|
||||||||
|
Maturity
- February 2012
|
136 | 228 | ||||||
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10.25%
Securitization Note
|
||||||||
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Expected
Maturity - September 2012
|
225 | 300 | ||||||
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2.875%
Convertible Debt
|
||||||||
|
Maturity
- February 2015
|
180 | - | ||||||
|
Total
Debt
|
$ | 541 | $ | 728 | ||||
2010
Dividends
PDL
previously announced that it would pay two special dividends of $0.50 per share
each, to its stockholders in 2010. The first special dividend, totaling $59.9
million, was paid on April 1, 2010 to all stockholders of record on March 15,
2010. The second special dividend, totaling $69.8 million, was paid on October
1, 2010 to all stockholders of record on September 15, 2010. PDL does not pay
regular dividends.
Fourth
Quarter and Full Year 2010 Revenue Guidance
As
previously announced, PDL will continue to provide revenue guidance for each
quarter in the third month of that quarter. Fourth quarter and year-end 2010
revenue guidance will be provided in early December.
Conference
Call Details
PDL will
hold a conference call to discuss financial results at 4:30 p.m. ET today,
November 10, 2010.
To access
the live conference call via phone, please dial (866) 271-5140 from the United
States and Canada or (617) 213-8893 internationally. The conference ID is
98631412. Please dial in approximately 10 minutes prior to the start of the
call. A telephone replay will be available beginning approximately one hour
after the call through November 17, 2010, and may be accessed by dialing (888)
286-8010 from the United States and Canada or (617) 801-6888 internationally.
The replay passcode is 74992654.
To access
the live and subsequently archived webcast of the conference call, go to the
Company’s website at http://www.pdl.com and go to “Company Presentations &
Events.” Please connect to the website at least 15 minutes prior to the call to
allow for any software download that may be necessary.
About
PDL BioPharma
PDL
pioneered the humanization of monoclonal antibodies and, by doing so, enabled
the discovery of a new generation of targeted treatments for cancer and
immunologic diseases. PDL is focused on maximizing the value of its antibody
humanization patents and related assets. The Company receives royalties on sales
of a number of humanized antibody products marketed by leading pharmaceutical
and biotechnology companies today based on patents which expire in late 2014.
For more information, please visit www.pdl.com.
NOTE: PDL
BioPharma and the PDL BioPharma logo are considered trademarks of PDL BioPharma,
Inc.
Non-GAAP
Financial Information
The
Company has presented certain financial information in conformance with
generally accepted accounting principles in the U.S. (GAAP) and also on a
non-GAAP basis for the three and nine months ended September 30, 2010 and
2009. Management believes that this non-GAAP information is useful for
investors taken in conjunction with the Company’s GAAP financial
statements. Non-GAAP financial information is not prepared under a
comprehensive set of accounting rules and should only be used to supplement an
understanding of the Company’s net income as reported under GAAP. A
reconciliation between GAAP and non-GAAP financial information is provided in
the table on page 5.
Forward-Looking
Statements
This
press release contains forward-looking statements. Each of these forward-looking
statements involves risks and uncertainties. Actual results may differ
materially from those, express or implied, in these forward-looking statements.
Factors that may cause differences between current expectations and actual
results include, but are not limited to, the following:
|
|
·
|
The
expected rate of growth in royalty-bearing product sales by PDL’s existing
licensees;
|
|
|
·
|
The
relative mix of royalty-bearing Genentech products manufactured and sold
outside the U.S. versus manufactured or sold in the
U.S.;
|
|
|
·
|
The
ability of our licensees to receive regulatory approvals to market and
launch new royalty-bearing products and whether such products, if
launched, will be commercially
successful;
|
|
|
·
|
Changes
in any of the other assumptions on which PDL’s projected royalty revenues
are based;
|
|
|
·
|
The outcome of pending litigation
or disputes;
|
|
|
·
|
The change in foreign currency
exchange rate; and
|
|
|
·
|
The
failure of licensees to comply with existing license agreements, including
any failure to pay royalties
due.
|
Other
factors that may cause PDL’s actual results to differ materially from those
expressed or implied in the forward-looking statements in this press release are
discussed in PDL’s filings with the SEC, including the “Risk Factors” section of
its annual and quarterly reports filed with the SEC. Copies of PDL’s filings
with the SEC may be obtained at the “Investors” section of PDL’s website at
www.pdl.com.
PDL expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in PDL’s expectations with regard thereto or any change in
events, conditions or circumstances on which any such statements are based for
any reason, except as required by law, even as new information becomes available
or other events occur in the future. All forward-looking statements in this
press release are qualified in their entirety by this cautionary
statement.
PDL
BIOPHARMA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
(In
thousands, except per share amounts)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Revenues
|
||||||||||||||||
|
Royalties
|
$ | 86,442 | $ | 71,446 | $ | 268,846 | $ | 247,147 | ||||||||
|
License
and other
|
- | - | - | 12,785 | ||||||||||||
|
Total
revenues
|
86,442 | 71,446 | 268,846 | 259,932 | ||||||||||||
|
General
and administrative expenses
|
11,110 | 5,255 | 29,340 | 15,538 | ||||||||||||
|
Operating
income
|
75,332 | 66,191 | 239,506 | 244,394 | ||||||||||||
|
Gain
(loss) on retirement or conversion of convertible notes
|
(2,354 | ) | 323 | (18,681 | ) | 1,518 | ||||||||||
|
Interest
and other income, net
|
167 | 214 | 337 | 860 | ||||||||||||
|
Interest
expense
|
(9,928 | ) | (3,105 | ) | (34,015 | ) | (10,036 | ) | ||||||||
|
Income
before income taxes
|
63,217 | 63,623 | 187,147 | 236,736 | ||||||||||||
|
Income
tax expense
|
23,028 | 17,217 | 70,813 | 75,636 | ||||||||||||
|
Net
income
|
$ | 40,189 | $ | 46,406 | $ | 116,334 | $ | 161,100 | ||||||||
|
Net
income per basic share
|
$ | 0.32 | $ | 0.39 | $ | 0.95 | $ | 1.35 | ||||||||
|
Net
income per diluted share
|
$ | 0.24 | $ | 0.29 | $ | 0.67 | $ | 0.97 | ||||||||
|
Cash
dividends declared per common share
|
$ | - | $ | - | $ | 1.00 | $ | 1.00 | ||||||||
|
Shares
used to compute income per basic share
|
127,479 | 119,411 | 122,209 | 119,366 | ||||||||||||
|
Shares
used to compute income per diluted share
|
172,217 | 168,576 | 178,448 | 172,248 | ||||||||||||
PDL
BIOPHARMA, INC.
RECONCILIATION
OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(Unaudited)
(In
thousands, except per share amounts)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
|
Net
income
|
$ | 40,189 | $ | 46,406 | $ | 116,334 | $ | 161,100 | ||||||||
|
Add
back loss (gain) on retirement or conversion of convertible
notes
|
2,354 | (323 | ) | 18,681 | (1,518 | ) | ||||||||||
|
Deduct
income tax expense (benefit) on retirement or conversion of convertible
notes
|
- | 113 | (1,590 | ) | 531 | |||||||||||
|
Non-GAAP
net income
|
42,543 | 46,196 | 133,425 | 160,113 | ||||||||||||
|
Add
back interest expense for convertible notes, net of estimated
taxes
|
987 | 1,681 | 3,982 | 5,444 | ||||||||||||
|
Non-GAAP
net income used to compute non-GAAP net income per diluted
share
|
$ | 43,530 | $ | 47,877 | $ | 137,407 | $ | 165,557 | ||||||||
|
Non-GAAP
net income per diluted share
|
$ | 0.25 | $ | 0.28 | $ | 0.77 | $ | 0.96 | ||||||||
|
Shares
used to compute net income per diluted share
|
172,217 | 168,576 | 178,448 | 172,248 | ||||||||||||
|
Delete
shares issued to induce note conversion to common stock (1)
|
(104 | ) | - | (35 | ) | - | ||||||||||
|
Shares
used to compute non-GAAP net income per diluted share
|
172,113 | 168,576 | 178,413 | 172,248 | ||||||||||||
(1) The
shares used to compute non-GAAP net income per diluted share amounts are the
same as the shares used to calculate GAAP net income per diluted share amounts,
except the shares for the three and nine months ended September 30, 2010 exclude
the weighted average effect of the shares issued as an incentive to induce
conversion of the 2023 Notes in August 2010.
PDL
BIOPHARMA, INC.
GENERAL
AND ADMINISTRATIVE EXPENSE DATA
(Unaudited)
(In
thousands)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Compensation
and benefits
|
$ | 965 | $ | 821 | $ | 2,962 | $ | 2,389 | ||||||||
|
Legal
expense
|
8,660 | 3,063 | 20,821 | 7,436 | ||||||||||||
|
Other
professional services
|
535 | 567 | 2,618 | 2,133 | ||||||||||||
|
Insurance
|
185 | 238 | 608 | 754 | ||||||||||||
|
Depreciation
|
14 | 35 | 76 | 957 | ||||||||||||
|
Stock-based
compensation
|
166 | 215 | 525 | 617 | ||||||||||||
|
Other
|
585 | 316 | 1,730 | 1,252 | ||||||||||||
|
Total
general and administrative expenses
|
$ | 11,110 | $ | 5,255 | $ | 29,340 | $ | 15,538 | ||||||||
PDL
BIOPHARMA, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET DATA
(Unaudited)
(In
thousands)
|
September 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Cash,
cash equivalents and short-term investments
|
$ | 227,190 | $ | 303,227 | ||||
|
Total
assets
|
$ | 257,507 | $ | 338,411 | ||||
|
Convertible
notes payable
|
$ | 227,990 | $ | 427,998 | ||||
|
Non-recourse
notes payable
|
$ | 225,041 | $ | 300,000 | ||||
|
Total
stockholders' deficit
|
$ | (304,542 | ) | $ | (415,953 | ) | ||
PDL
BIOPHARMA, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW DATA
(Unaudited)
(In
thousands)
|
Nine Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
income
|
$ | 116,334 | $ | 161,100 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
20,199 | (3,586 | ) | |||||
|
Changes
in assets and liabilities
|
17,780 | (24,710 | ) | |||||
|
Net
cash provided by operating activities
|
$ | 154,313 | $ | 132,804 | ||||
PDL
BIOPHARMA, INC.
MIX
OF EX-U.S.-BASED SALES AND EX-U.S.-BASED MANUFACTURING AND SALES
OF
GENENTECH PRODUCTS
(Unaudited)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Avastin
|
||||||||||||||||
|
%
Ex-U.S.-based Sales
|
49 | % | 46 | % | 49 | % | 46 | % | ||||||||
|
%
Ex-U.S.-based-Manufacturing and Sales
|
27 | % | - | 20 | % | - | ||||||||||
|
Herceptin
|
||||||||||||||||
|
%
Ex-U.S.-based-Sales
|
68 | % | 68 | % | 70 | % | 70 | % | ||||||||
|
%
Ex-U.S.-based Manufacturing and Sales
|
45 | % | 47 | % | 45 | % | 31 | % | ||||||||
|
Lucentis
|
||||||||||||||||
|
%
Ex-U.S.-based Sales
|
56 | % | 55 | % | 57 | % | 52 | % | ||||||||
|
%
Ex-U.S.-based Manufacturing and Sales
|
- | - | - | - | ||||||||||||
|
Xolair
|
||||||||||||||||
|
%
Ex-U.S.-based Sales
|
34 | % | 31 | % | 35 | % | 28 | % | ||||||||
|
%
Ex-U.S.-based Manufacturing and Sales
|
34 | % | 31 | % | 35 | % | 28 | % | ||||||||
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
The
following document was compiled from public documents for your
convenience. This document, together with the Form 10-Q filed
yesterday and press release issued today, provides information regarding PDL
related to its third quarter 2010 financial and business results.
Licensed
Product Development and Regulatory Updates
|
|
·
|
ACTEMRA®: On October 19, 2010,
Roche submitted a supplemental Biologics License Application (sBLA) to the
FDA and European Medicines Agency (EMA) to extend the license indication
of ACTEMRA (RoACTEMRA in Europe) for the treatment of systemic Juvenile
Idiopathic Arthritis (sJIA). In addition, on November 7, 2010, Genentech
announced positive updated data from a phase 3 study showing that 85%
(64/75) children with sJIA receiving ACTEMRA experienced a 30% improvement
in the signs and symptoms and an absence of fever after three months of
therapy for sJIA compared with 24% (18/37) of children receiving
placebo.
|
|
|
·
|
AVASTIN®: On October 18, 2010,
the National Comprehensive Cancer Network reaffirmed its existing
recommendation for the use of Avastin (bevacizumab) in metastatic breast
cancer. In addition, in mid-September, the FDA extended the review period
for Genentech’s sBLA for Avastin in previously untreated advanced
HER2-negative breast cancer until December 17,
2010.
|
|
|
·
|
AVASTIN: On October 18, 2010,
Roche announced that Avastin did not meet its primary endpoint in a study
using Avastin plus chemotherapy in the adjuvant treatment of early-stage
colon cancer. Avastin is already approved for the treatment of metastatic
colon cancer.
|
|
|
·
|
HERCEPTIN®: On October 20, 2010,
Roche announced that the FDA approved Herceptin (trastuzumab) in
combination with chemotherapy for HER2-positive metastatic cancer of the
stomach or gastroesophageal junction, for patients who have not received
prior treatment. The European Commission approved Herceptin for
this indication in January 2010.
|
|
|
·
|
TEPLIZUMAB: On October 20, 2010,
Eli Lilly announced that teplizumab, a biologic under development for the
treatment of individuals with recent-onset type 1 diabetes, did not meet
its primary efficacy endpoint in a Phase 3 clinical
trial. Enrollment in two other ongoing clinical trials using
teplizumab to treat type 1 diabetes was
suspended.
|
|
|
·
|
OCRELIZUMAB: On October 15, 2010,
Genentech and Biogen announced positive results from a Phase 2 study of
ocrelizumab in patients with relapsing-remitting multiple sclerosis,
showing that ocrelizumab demonstrated a significant reduction in disease
activity as measured by brain lesions and relapse
rate.
|
|
|
·
|
LINTUZUMAB: On
September 13, 2010, Seattle Genetics announced that its Phase 2b trial of
lintuzumab in older patients with acute myeloid leukemia did not meet its
primary endpoint of extending overall survival, and the company plans to
discontinue development of this
program.
|
|
|
·
|
TRASTUZUMAB-DM1
(T-DM1): On August 25, 2010, the FDA
issued a Refuse to File letter for accelerated approval of Genentech’s
T-DM1 BLA. Genentech plans to continue its ongoing Phase 3 registrational
trial for this compound and plans to submit a new BLA in mid-2012. On
October 13, Roche announced preliminary, six month results from a Phase 3
trial in second line HER2+ breast cancer patients which showed that 48
percent of women treated with T-DM1 had their tumors shrink compared with
41 percent of those taking the combination of Herceptin and
Taxotere. Among the women taking the standard therapy, 75
percent had side effects of grade 3 or higher on a 5-point scale, compared
with 37 percent of those getting
T-DM1.
|
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
Non-GAAP
Earnings per Share
An
important part of PDL’s strategy is the improvement of its capital structure and
reducing the dilution associated with its convertible notes. To this
end, in the third quarter of 2010, we exchanged an aggregate $61.6 million face
value of our 2.75% convertible subordinated notes due in August 2023 (the 2023
Notes) for 11.1 million shares of common stock. Holders received an additional
three shares of common stock per $1,000 principal or a conversion rate of
180.1594 shares per $1,000 face amount. Following this transaction,
we issued a redemption notice for the remaining $54.3 million
principal. As a result, $50.1 million of the outstanding principal
was converted to 8.9 million shares of common stock and $4.2 million was
redeemed for cash. These transactions resulted in a charge to non-operating
expense of $2.4 million net of tax. The effect of these transactions
was to reduce net income per diluted share from $0.25 to $0.24. It is important
to note that as a result of the above transactions, all 2023 Notes have been
retired.
During
the third quarter of 2009, we repurchased at market prices $17 million face
value of our 2.00% convertible senior notes due in February 2012 (the 2012
Notes) at approximately a three percent discount to face value for total
consideration of $16.5 million in cash plus accrued but unpaid interest. This
transaction resulted in a gain of $0.2 million net of tax. The effect of this
transaction was to increase net income per diluted share from $0.28 to
$0.29.
The
result of the repurchase transactions reduced the number shares used to compute
net income per diluted share on an as-converted basis by 15.6 million
shares and 8.1 million shares in 2010 and 2009,
respectively.
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
Excluding
these transactions, non-GAAP earnings per share was:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(In
thousands except per share amounts)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
|
Net
income
|
$ | 40,189 | $ | 46,406 | $ | 116,334 | $ | 161,100 | ||||||||
|
Add
back loss (gain) on retirement or conversion of convertible
notes
|
2,354 | (323 | ) | 18,681 | (1,518 | ) | ||||||||||
|
Deduct
income tax expense (benefit) on retirement or conversion of convertible
notes
|
- | 113 | (1,590 | ) | 531 | |||||||||||
|
Non-GAAP
net income
|
42,543 | 46,196 | 133,425 | 160,113 | ||||||||||||
|
Add
back interest expense for convertible notes, net of estimated
taxes
|
987 | 1,681 | 3,982 | 5,444 | ||||||||||||
|
Non-GAAP
net income used to compute non-GAAP net income per diluted
share
|
$ | 43,530 | $ | 47,877 | $ | 137,407 | $ | 165,557 | ||||||||
|
Non-GAAP
net income per diluted share
|
$ | 0.25 | $ | 0.28 | $ | 0.77 | $ | 0.96 | ||||||||
|
Shares
used to compute net income per diluted share
|
172,217 | 168,576 | 178,448 | 172,248 | ||||||||||||
|
Delete
shares issued to induce note conversion to common stock (1)
|
(104 | ) | - | (35 | ) | - | ||||||||||
|
Shares
used to compute non-GAAP net income per diluted share
|
172,113 | 168,576 | 178,413 | 172,248 | ||||||||||||
(1) The
shares used to compute non-GAAP net income per diluted share amounts are the
same as the shares used to calculate GAAP net income per diluted share amounts,
except the shares for the three and nine months ended September 30, 2010 exclude
the weighted average effect of the shares issued as an incentive to induce
conversion of the 2023 Notes in August 2010.
Special
Dividend Payment
On
October 1, 2010, PDL paid the second of two special dividends for 2010, totaling
$69.8 million, to all stockholders of record on September 15, 2010.
2012
Convertible Senior Notes Exchange
As
previously announced, PDL completed an exchange of $92.0 million in aggregate
principal of the 2012 Notes in separate, privately negotiated transactions with
the note holders. Pursuant to the exchange transactions, the note holders
received $92.0 million in aggregate principal of new 2.875% Convertible Senior
Notes due February 15, 2015 (the 2015 Notes). As part of the transaction, the
Company also placed an additional $88.0 million in aggregate principal of the
2015 Notes. Following the exchange transactions, $136.0 million of the 2012
Notes remain outstanding. The conversion rate for the 2015 Notes is 140.571
shares of common stock per $1,000 principal amount of the 2015 Notes or $7.11
per share of common stock.
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
The
following summarizes the Company’s debt outstanding at December 31, 2009 and at
November 1, 2010.
|
Debt Outstanding
(In millions)
|
||||||||
|
11/1/2010
|
12/31/2009
|
|||||||
|
2.75%
Convertible Debt
|
||||||||
|
Put
Option - August 2010
|
$ | - | $ | 200 | ||||
|
2.00%
Convertible Debt
|
||||||||
|
Maturity
- February 2012
|
136 | 228 | ||||||
|
10.25%
Securitization Note
|
||||||||
|
Expected
Maturity - September 2012
|
225 | 300 | ||||||
|
2.875%
Convertible Debt
|
||||||||
|
Maturity
- February 2015
|
180 | - | ||||||
|
Total
Debt
|
$ | 541 | $ | 728 | ||||
Genentech
Update
In August, PDL received
a letter from Genentech, which was sent at the behest of Roche and Novartis,
asserting that Avastin®, Herceptin®, Lucentis® and Xolair® do not infringe the
supplementary protection certificates (SPCs) granted to PDL by various countries
in Europe and asking for PDL’s views on the matter. The letter does
not describe what actions, if any, Genentech intends to take with respect to its
assertions. As background, our SPCs were applied for, and granted by,
the relevant national patent offices in Europe and, by their terms, specifically
cover the Genentech products by their generic name.
The
letter from Genentech refers only to those products that are both made and sold
outside the U.S. It does not suggest that the Genentech products do
not infringe PDL’s U.S. patents which cover products made in the U.S. and sold
anywhere in the world. At the end of August, following
the receipt of the letter, PDL received its regular quarterly payment from
Genentech and it included royalties generated on all worldwide sales of the
Genentech products. The next royalty payment is due at the end of
November.
It is
important to note that management believes that the SPCs are enforceable against
the Genentech products, that Genentech’s letter violates the terms of the 2003
settlement agreement and that Genentech owes us royalties on sales of their
products on a worldwide basis. As such, we intend to vigorously
assert our SPC-based patent rights and in August PDL responded to Genentech,
stating that it believes that its assertions are without merit and that it
disagrees fundamentally with its assertions of
non-infringement. There have been discussions between the companies
regarding this matter. If we cannot reach a mutually agreeable
resolution, we will vigorously enforce our rights, including the rights under
the agreements with Genentech and also against Roche and Novartis. To
this end, we filed a complaint in Nevada, naming Genentech, Roche and Novartis
as defendants.
PDL and
Genentech entered into a definitive agreement in 2003 to resolve all
intellectual property disputes between the two companies. The agreement limits
Genentech’s ability to challenge infringement of our patent rights and waives
Genentech’s right to challenge the validity of our patent rights. Specific
breaches of this settlement agreement, which were filed in Nevada court by PDL
in August, require Genentech to pay us liquidated and other damages of up to $1
billion. This amount is calculated based on a retroactive royalty rate of 3.75%
on past sales of the Genentech products that were made in the U.S. and sold
anywhere in the world, as well as interest, among other items. In addition,
breaches of the 2003 settlement agreement would entitle us to either terminate
our license agreements with Genentech or be paid a flat royalty of 3.75% on
future sales of Genentech products made in the U.S. and sold anywhere in the
world regardless of sales volume.
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
Today our
license agreement states that we receive a tiered royalty rate for sales of
product made in the U.S. and sold anywhere in the world. The royalty
rate starts at 3% and decreases to 1% on annual, aggregate sales of $4 billion
or more. We receive a flat 3% royalty rate on sales of product
that is manufactured and sold outside of the U.S.
Specifically
in our Nevada complaint, we alleged that the communication received from
Genentech in August constitutes a breach of Genentech’s obligations under the
2003 settlement agreement. We alleged that Roche and Novartis
knowingly interfered with PDL’s contractual relationship with Genentech in
conscious disregard of PDL’s rights. We are seeking a declaratory
judgment from the court that Genentech is obligated to pay royalties to PDL on
international sales of its products. In addition, we are seeking
compensatory damages, including liquidated damages and other monetary remedies
set forth in the 2003 settlement agreement, and punitive damages as well as
legal fees.
In early
November, Genentech and Roche filed a motion to dismiss our complaint for
failure to state a claim on which relief can be granted, as they contend that
all of our claims for relief relating to the 2003 settlement agreement should be
dismissed because that agreement applies only to PDL’s U.S.
patents. In addition, they have filed a motion to dismiss our
complaint on the ground that Nevada lacks personal jurisdiction over
Roche. We disagree with these motions and we intend to oppose
them. Novartis is expected to provide its response to our complaint
in December 2010.
Overall,
we would like to resolve this dispute in a manner mutually agreeable to all
parties. Litigation can be costly, time consuming and is not without
risk. For additional information on this matter, including a
redacted version of the 2003 settlement agreement, please see our Form 10-Q
filed on November 9, 2010. The 2003 settlement agreement was filed
yesterday with our Form 10-Q as Exhibit 10.1.
Forward-looking
Statements
This
document contains forward-looking statements. Each of these forward-looking
statements involves risks and uncertainties. Actual results may differ
materially from those, express or implied, in these forward-looking statements.
Factors that may cause differences between current expectations and actual
results include, but are not limited to, the following:
|
|
·
|
The
expected rate of growth in royalty-bearing product sales by PDL's existing
licensees;
|
|
|
·
|
The
relative mix of royalty-bearing Genentech products manufactured and sold
outside the U.S. versus manufactured or sold in the
U.S.;
|
|
|
·
|
The
ability of our licensees to receive regulatory approvals to market and
launch new royalty-bearing products and whether such products, if
launched, will be commercially
successful;
|
|
|
·
|
Changes
in any of the other assumptions on which PDL's projected royalty revenues
are based;
|
PDL
BioPharma, Inc.
Q3-2010
November
10, 2010
|
|
·
|
The
outcome of pending litigation or
disputes;
|
|
|
·
|
The
change in foreign currency exchange rate;
and
|
|
|
·
|
The
failure of licensees to comply with existing license agreements, including
any failure to pay royalties due.
|
Other
factors that may cause PDL's actual results to differ materially from those
expressed or implied in the forward-looking statements in this document are
discussed in PDL's filings with the SEC, including the "Risk Factors" sections
of its annual and quarterly reports filed with the SEC. Copies of PDL's filings
with the SEC may be obtained at the "Investors" section of PDL's website at
www.pdl.com. PDL expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in PDL's expectations with regard thereto
or any change in events, conditions or circumstances on which any such
statements are based for any reason, except as required by law, even as new
information becomes available or other events occur in the
future. All forward-looking statements in this press release are
qualified in their entirety by this cautionary statement.