PDL BioPharma Announces Second Quarter 2017 Financial Results

INCLINE VILLAGE, Nev., Aug. 3, 2017 /PRNewswire/ -- PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) today reported financial results for the second quarter ended June 30, 2017 including:

    --  Total revenues of $143.8 million and $189.3 million for the three and
        six months ended June 30, 2017, respectively.
    --  GAAP diluted EPS of $0.39 and $0.42 for the three and six months ended
        June 30, 2017, respectively.
    --  GAAP net income attributable to PDL's shareholders of $60.4 million and
        $67.7 million for the three and six months ended June 30, 2017,
        respectively.
    --  Non-GAAP net income attributable to PDL's shareholders of $40.2 million
        and $53.5 million for the three and six months ended June 30, 2017. A
        full reconciliation of all components of the GAAP to non-GAAP financial
        results can be found in Table 4 at the end of the release.

Revenue Highlights

    --  Total revenues of $143.8 million for the three months ended June 30,
        2017 included:
        --  Royalties from PDL's licensees to the Queen et al. patents of $16.3
            million, which consisted of royalties earned on sales of Tysabri(®)
            under a license agreement;
        --  Net royalty payments from acquired royalty rights and a change in
            fair value of the royalty rights assets of $83.7 million, which
            consisted of the change in estimated fair value of our royalty right
            assets, primarily related to Depomed, Inc., University of Michigan,
            AcelRx Pharmaceuticals, Inc. and Kybella;
        --  Interest revenue from notes receivable financings to kaléo and
            CareView Communications of $5.5 million; and
        --  Product revenues of $18.8 million, which consisted of $16.2 million
            from sales of Tekturna(®) and Tekturna HCT(®) in the United
            States, Rasilez(®) and Rasilez HCT(®) in the rest of the world
            (collectively, the Noden Products) and $2.6 million for sales and
            leasing of the LENSAR Laser System.
    --  Total revenues increased by 583 percent for the three months ended June
        30, 2017, when compared to the same period in 2016.
        --  The increase in royalties from PDL's licensees to the Queen et al.
            patents is due to the increased royalties on Tysabri(®) from
            Biogen, Inc.
        --  The increase in royalty rights - change in fair value was primarily
            due to the current period increase in fair value of the Depomed,
            Inc. royalty asset by $87.0 million.
        --  PDL received $34.6 million in net cash royalties from its royalty
            rights in the second quarter of 2017, compared to $14.7 million for
            the same period of 2016. The increase in cash royalties is mainly
            due to the launch of the authorized generic for Glumetza(®) in
            February 2017 sold by Valeant Pharmaceuticals International, inc.
            (Valeant) subsidiary, oceanside Pharmaceuticals, Inc. PDL received
            royalties on the authorized generic equivalents under the same terms
            as the branded Glumetza, retroactive to February 2017.
        --  The decrease in interest revenues was primarily due to the early
            repayment of the Paradigm Spine, LLC note receivable investment.
        --  Product revenues were derived from sales of the Noden Products,
            which PDL did not begin to recognize until the third quarter of
            2016, and the sale and lease of the LENSAR Laser System, which PDL
            did not begin to recognize until May 11, 2017.
        --  License and other revenue increased by $19.2 million primarily due
            to a $19.5 million payment from Merck as part of the previously
            announced settlement agreement to resolve the patent infringement
            lawsuits related to Keytruda(®).
    --  Total revenues increased by 52 percent for the six months ended June 30,
        2017, when compared to the same period in 2016.
        --  The decrease in royalties from PDL's licensees to the Queen et al.
            patents is due to the expiration of the patent license agreement
            with Genentech, Inc.
        --  The increase in royalty rights - change in fair value was primarily
            due to the current period increase in fair value of the Depomed,
            Inc. royalty asset by $93.5 million.
        --  PDL received $48.1 million in net cash royalties from its royalty
            rights in the six months ended June 30, 2017, compared to $31.9
            million for the same period of 2016.
        --  The decrease in interest revenues was primarily due to the early
            repayment of the Paradigm Spine, LLC note receivable investment and
            ceasing to recognize interest from the LENSAR note receivable.
        --  Product revenue variances were the same as the three months ended
            June 30, 2017.

Operating Expense Highlights

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

Recent Developments

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

Other Financial Highlights

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

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results at 4:30 p.m. Eastern Time today, August 3, 2017.

To access the live conference call via phone, please dial (800) 668-4132 from the United States and Canada or (224) 357-2196 internationally. The conference ID is 51927827. Please dial in approximately 10 minutes prior to the start of the call. A telephone replay will be available beginning approximately one hour after the call through one week following the call, and may be accessed by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally. The replay passcode is 51927827.

To access the live and subsequently archived webcast of the conference call, go to the Company's website at http://www.pdl.com and go to "Events & Presentations." Please connect to the website at least 15 minutes prior to the call to allow for any software download that may be necessary.

About PDL BioPharma, Inc.

We seek to provide a significant return for our shareholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotech, pharmaceutical and medical device industries. In 2012, we began providing alternative sources of capital through royalty monetizations and debt facilities, and in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. To date, we have consummated 17 of such transactions, of which nine are active and outstanding. We have two debt transactions outstanding, representing deployed and committed capital of $170.0 million and $190.0 million, respectively: CareView and kaléo; we have one hybrid royalty/debt transaction outstanding, representing deployed and committed capital of $44.0 million: Wellstat Diagnostics; and we have five royalty transactions outstanding, representing deployed and committed capital of $396.1 million and $397.1 million, respectively: KYBELLA(®), AcelRx, University of Michigan, Viscogliosi Brothers and Depomed. Our equity and loan investments in Noden represent deployed and committed capital of $179.0 million and $202.0 million, respectively.

NOTE: PDL, PDL BioPharma, the PDL logo and the PDL BioPharma logo are trademarks or registered trademarks of, and are proprietary, to PDL BioPharma, Inc. which reserves all rights therein.

Forward-looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those, express or implied, in these forward-looking statements. Important factors that could impair the value of the Company's royalty assets, restrict or impede the ability of the Company to invest in new royalty bearing assets and limit the Company's ability to pay dividends are disclosed in the risk factors contained in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission, filed with the Securities and Exchange Commission on March 1, 2017. All forward-looking statements are expressly qualified in their entirety by such factors. We do not undertake any duty to update any forward-looking statement except as required by law.


                                                                              TABLE 1

                                                                        PDL BIOPHARMA, INC.

                                                         CONDENSED CONSOLIDATED STATEMENTS OF INCOME DATA

                                                             (In thousands, except per share amounts)


                                             Three Months Ended                                         Six Months Ended

                                                June 30,                                             June 30,

                                        2017                   2016                    2017                            2016
                                        ----                   ----                    ----                            ----

    Revenues

    Royalties from Queen et al.
     patents                                   $16,285                                        $14,232                            $30,441  $135,687

    Royalty rights -change in fair
     value                            83,725                            (855)                              96,871               (27,957)

    Interest revenue                   5,460                            7,343                               10,917                 16,307

    Product revenue, net              18,829                                -                              31,410                      -

    License and other                 19,536                              327                               19,636                    134
                                      ------                              ---                               ------                    ---

    Total revenues                   143,835                           21,047                              189,275                124,171
                                     -------                           ------                              -------                -------


    Operating Expenses

    Cost of product revenue
     (excluding intangible
     amortization)                     4,515                                -                               7,067                      -

    Amortization of intangible
     assets                            6,148                                -                              12,163                      -

    General and administrative
     expenses                         11,288                            6,951                               23,864                 16,797

    Sales and marketing                3,616                                -                               6,200                      -

    Research and development           4,281                                -                               6,047                      -

    Change in fair value of
     anniversary payment and
     contingent consideration          1,207                                -                               2,649                      -

    Acquisition-related costs              -                           2,959                                    -                 2,959

    Total operating expenses          31,055                            9,910                               57,990                 19,756
                                      ------                            -----                               ------                 ------

    Operating income                 112,780                           11,137                              131,285                104,415
                                     -------                           ------                              -------                -------


    Non-operating expense, net

    Interest and other income, net       276                              129                                  488                    242

    Interest expense                 (5,015)                         (4,461)                              (9,986)               (9,011)

    Gain on bargain purchase           6,271                                -                               6,271                      -
                                       -----                              ---                               -----                    ---

    Total non-operating expense, net   1,532                          (4,332)                              (3,227)               (8,769)
                                       -----                           ------                               ------                 ------


    Income before income taxes       114,312                            6,805                              128,058                 95,646

    Income tax expense                53,873                            2,657                               60,425                 35,611
                                      ------                            -----                               ------                 ------

    Net income                        60,439                            4,148                               67,633                 60,035

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

    Net income attributable to PDL's
     shareholders                              $60,439                                         $4,148                            $67,680   $60,035
                                               =======                                         ======                            =======   =======


    Net income per share

    Basic                                        $0.39                                          $0.03                              $0.42     $0.37
                                                 =====                                          =====                              =====     =====

    Diluted                                      $0.39                                          $0.03                              $0.42     $0.37
                                                 =====                                          =====                              =====     =====


    Shares used to compute income
     per basic share                 155,654                          163,791                              159,677                163,729
                                     =======                          =======                              =======                =======

    Shares used to compute income
     per diluted share               156,394                          164,029                              160,168                163,920
                                     =======                          =======                              =======                =======


    Cash dividends declared per
     common share                          $         -                                         $0.05                          $       -    $0.10
                                         ===       ===                                         =====                        ===     ===    =====


                                    TABLE 2

                              PDL BIOPHARMA, INC.

                   CONDENSED CONSOLIDATED BALANCE SHEET DATA

                                  (Unaudited)

                                (In thousands)


                               June 30,                 December 31,

                                    2017                          2016
                                    ----                          ----

    Cash, cash
     equivalents
     and short-
     term
     investments                             $435,323                    $242,141

    Total notes
     receivable                              $217,193                    $270,950

    Total royalty
     rights -at
     fair value                              $342,958                    $402,318

    Total assets                           $1,301,971                  $1,215,387

    Total
     convertible
     notes payable                           $237,837                    $232,443

    Total
     stockholders'
     equity                                  $818,798                    $755,423


                                         TABLE 3

                                   PDL BIOPHARMA, INC.

                   CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW DATA

                                       (Unaudited)

                                     (In thousands)


                                            Six Months Ended

                                                June 30,

                                           2017                    2016
                                           ----                    ----

    Net income                                     $67,633                      $60,035

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

    Changes in
     assets and
     liabilities                         38,768                           8,748

    Net cash
     provided by
     operating
     activities                                    $61,612                      $94,752
                                                   =======                      =======


                                                                                                     TABLE 4

                                                                                               PDL BIOPHARMA, INC.

                                                                                         GAAP to NON-GAAP RECONCILIATION:

                                                                                    NET INCOME AND DILUTED EARNINGS PER SHARE

                                                                                                   (Unaudited)

                                                                             (In thousands, except per share amount)


    A reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:


                                                                    Three Months Ended                                    Six Months Ended

                                                                         June 30,                                             June 30,

                                                                2017                    2016                    2017                        2016
                                                                ----                    ----                    ----                        ----

    GAAP net income attributed to PDL's
     shareholders as reported                                           $60,439                                         $4,148                     $67,680   $60,035

    Adjustments to Non-GAAP net income
     (as detailed below)                                    (20,225)                           10,984                             (14,159)         40,164

    Non-GAAP net income attributed to
     PDL's shareholders                                                 $40,214                                        $15,132                     $53,521  $100,199
                                                                        -------                                        -------                     -------  --------


    An itemized reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:


                                                                    Three Months Ended                                    Six Months Ended

                                                                         June 30,                                             June 30,

                                                                2017                    2016                    2017                        2016
                                                                ----                    ----                    ----                        ----

    GAAP net income attributed to PDL's
     shareholders as reported                                           $60,439                                         $4,148                     $67,680   $60,035
                                                                        -------                                         ------                     -------   -------

    Adjustments:

    Mark-to-market adjustment to fair
     value assets                                           (49,157)                           15,543                             (48,809)         59,866

    Non-cash interest revenues                                  (77)                            (325)                               (152)        (2,276)

    Non-cash stock-based compensation
     expense                                                     963                               813                                2,075           1,599

    Non-cash debt offering costs                               2,719                             1,558                                5,394           4,019

    Mark-to-market adjustment on
     warrants held                                              (36)                              418                                (136)            747

    Amortization of the intangible
     assets                                                    6,148                                 -                              12,163               -

    Mark-to-market adjustment of
     anniversary payment and contingent
     consideration                                             1,207                                 -                               2,649               -

    Income tax effect related to above
     items                                                    18,008                           (7,023)                               12,657        (23,791)
                                                              ------                            ------                               ------         -------

    Total adjustments                                       (20,225)                           10,984                             (14,159)         40,164
                                                             -------                            ------                              -------          ------

    Non-GAAP net income                                                 $40,214                                        $15,132                     $53,521  $100,199
                                                                        =======                                        =======                     =======  ========

Use of Non-GAAP Financial Measures

We supplement our consolidated financial statements presented on a GAAP basis by providing additional measures which may be considered "non-GAAP" financial measures under applicable SEC rules. We believe that the disclosure of these non-GAAP financial measures provides our investors with additional information that reflects the amounts and financial basis upon which our management assesses and operates our business. These non-GAAP financial measures are not in accordance with generally accepted accounting principles and should not be viewed in isolation or as a substitute for reported, or GAAP, net income, and diluted earnings per share, and are not a substitute for, or superior to, measures of financial performance performed in conformity with GAAP.

"Non-GAAP net income" is not based on any standardized methodology prescribed by GAAP and represent GAAP net income adjusted to exclude (1) mark-to market adjustments related to the fair value election for our investments in royalty rights presented in our earnings, which include the fair value re-measurement of future discounted cash flows for each of the royalty rights assets we have acquired, (2) non-cash interest revenue from notes receivable (3) stock-based compensation expense, (4) non-cash interest expense related to PDL debt offering costs, (5) mark-to market adjustments related to warrants held, (6) mark-to-market adjustment related to acquisition-related contingent considerations, (7) amortization of intangible assets, and to adjust (7) the related tax effect of all reconciling items within our reconciliation of our GAAP to Non-GAAP net income. Non-GAAP financial measures used by PDL may be calculated differently from, and therefore may not be comparable to, non-GAAP measures used by other companies.

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