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Earnings Beat at PDL BioPharma

Zacks Equity Research

PDL BioPharma Inc. (PDLI) posted first quarter earnings of 30 cents per share, above the year-ago figure of 25 cents and the Zacks Consensus Estimate of 26 cents. Lower diluted weighted average shares outstanding offset the decline in revenue to drive earnings in the quarter.

PDL BioPharma generated first-quarter 2012 revenue of $77.3 million, representing a 7.2% decline from $83.3 million in the prior-year period. Revenues were slightly above the Zacks Consensus Estimate of $77 million and the guidance of $77 million announced by the company in March 2012. First quarter 2011 revenues were boosted by a $10 million sum received from UCB Pharma S.A. as final settlement of a legal dispute.

Quarter in Detail

PDL BioPharma currently derives a significant portion of its revenue from licenses granted to other companies.

PDL BioPharma receives royalties on worldwide net sales of Roche Holdings Ltd.'s (RHHBY) Avastin and Herceptin; Roche and Novartis’ (NVS) Lucentis and Xolair; and Elan Corporation (ELN) and Biogen Idec’s (BIIB) Tysabri.

Royalty revenues of $77.3 million represented an increase of 5.5% from the year-ago period. Increased royalties on sales of Herceptin, Lucentis, Xolair and Tysabri drove first quarter 2012 royalties.

Effective from the second quarter of 2011, PDL BioPharma started paying back a portion of the royalties it receives on Lucentis sales outside the U.S to Novartis. The payment is made in accordance with a settlement agreement, which the companies had entered into in February 2011. The first quarter 2012 revenue is net of this payment.

Avastin sales suffered due to the withdrawal of the drug in the U.S. for the metastatic breast cancer indication as well as pricing pressure in the E.U. In the first quarter of 2012, Roche reported a mere 1% year-over-year growth in Avastin revenues.

General and administrative (G&A) expenses were $6.9 million in the reported quarter, up approximately 20.2% due to the company’s efforts to obtain new royalty assets, expenses associated with the tender offer and exchange transaction for the Series 2012 Notes.

On March 14, 2012, PDL BioPharma paid the first quarterly dividend of 15 cents per share.

The company is expected to provide second quarter 2012 revenue guidance in early June 2012.

Our Recommendation

Currently, we have an Outperform recommendation on PDL BioPharma. The stock carries a Zacks #1 Rank (“Strong Buy”) in the short term.

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