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PDL BioPharma to Finance Avinger

Zacks Equity Research

PDL BioPharma Inc. (:PDL) completed a structured financing and royalty transaction with Avinger, Inc. on Apr 18, 2013.

As per the agreement, PDL BioPharma will provide up to $40 million of mezzanine financing to Avinger. Out of the $40 million, PDL BioPharma has already paid $20 million in cash on the closing date. Avinger will receive an additional amount of up to $20 million on achieving certain revenue milestones.

PDL BioPharma will be receiving a low, single-digit royalty on Avinger's suite of products sales till April 2018 along with interest on the principal amount outstanding.

PDL BioPharma’s fund will be utilized to support the commercialization of Avinger’s lumivascular technologies, which currently include the Ocelot family of products and Lightbox. Avinger also aims to make use of the funds to further develop its next-generation lumivascular atherectomy device, Pantheris.

We note that PDL BioPharma receives royalties from big companies like Roche Holdings Ltd. (RHHBY) and Novartis (NVS). The royalties are earned on worldwide net sales of products like Avastin, Herceptin, Lucentis, Xolair, Tysabri and Perjeta. The company also expects to receive royalties on sales of Roche’s Kadcyla, approved in Feb 2013, from the second quarter of 2013.

PDL BioPharma is expecting to generate first quarter 2013 royalty revenues of around $92 million, which represents an increase of around 19.5% year over year. Royalty revenues of the company are expected to benefit from higher sales of Herceptin (up 11%), Avastin (up 10%), Tysabri (up 16%) and Lucentis (up 12%) during the fourth quarter of 2012. We note that the company’s first quarter 2013 revenues are based on the sales of the products in the preceding quarter.

PDL BioPharma presently carries a Zacks Rank #3 (Hold). Meanwhile, other companies such as Athersys Inc. (ATHX) currently look better positioned carrying a Zacks Rank #1 (Strong Buy).

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