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PDL BioPharma Misses on Q2 Earnings due to Higher Expenses

Zacks Equity Research

PDL BioPharma Inc. (PDLI) posted second-quarter 2014 earnings of 52 cents per share, below the Zacks Consensus Estimate of 55 cents and the year-ago figure of 62 cents per share. Earnings declined due to higher expenses.

PDL BioPharma generated second-quarter 2014 revenues of $162.8 million, up 10% year over year. Revenues were above the company’s guidance of $140 million announced in Jun 2014. Revenues were also convincingly above the Zacks Consensus Estimate of $131 million.

Pdl Biopharma, Inc - Earnings Surprise | FindTheBest

Quarter in Detail

PDL BioPharma derived revenues for the second quarter of 2014 primarily from royalties. PDL BioPharma receives royalties from companies like Roche Holdings Ltd. (RHHBY) and Novartis (NVS). The royalties are earned on worldwide net sales of products like Avastin, Herceptin, Xolair, Kadcyla, Actemra and Perjeta.

Purchase of Depomed's diabetes-related royalties and increased royalties on sales of Xolair, Kadcyla, Perjeta and Actemra drove second-quarter revenues. Revenues were however partially offset by a decrease in royalty revenues in the quarter due to the fixed rate of 2.125% applied on Roche products as against the tired royalty rate applicable in the same quarter last year.

According to the agreement with Roche, inked in Feb 2014, and effective retroactively to Aug 15, 2013, PDL BioPharma will receive a fixed royalty rate of 2.125% on global sales of Avastin, Herceptin, Lucentis Xolair, Kadcyla and Perjeta from Roche. Previously royalties on Roche’s products were tiered 1–3% in the U.S. and flat 3% in the ex-U.S. markets. PDL BioPharma is expected to recognize royalties till the first quarter of 2016.

General and administrative (G&A) expenses were $6.9 million in the reported quarter, up 2%.

The company is expected to provide its revenue guidance for the third quarter of 2014 in Sep 2014.

Other Developments

During the second quarter, PDL BioPharma funded another $15 million to Durata Therapeutics for the marketing approval of Dalvance (dalbavancin) in the U.S. In Jun 2014, PDL BioPharma also entered into a royalty purchase and sale agreement with Viscogliosi Brothers, LLC. As per the agreement, PDL BioPharma will receive royalties on sales of a PMA-approved spinal implant held by Viscogliosi Brothers for a cash payment of $15.5 million.

Our Take

PDL BioPharma’s second quarter earnings were disappointing. We are still concerned about PDL BioPharma’s future revenue stream once the royalty payments dry up.

PDL BioPharma currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Zacks Ranked #1 (Strong Buy) Gilead Sciences Inc. (GILD).

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