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PDL BioPharma Reports Third Quarter 2018 Financial Results

Announces CEO succession plan

INCLINE VILLAGE, Nev., Nov. 6, 2018 /PRNewswire/ -- PDL BioPharma, Inc. ("PDL" or "the Company") (PDLI) reports financial results for the three and nine months ended September 30, 2018 including:

Third Quarter Financial Highlights

  • Total revenues of $67.9 million.
  • GAAP net income attributable to PDL's shareholders of $25.6 million or $0.18 per share.
  • Non-GAAP net income attributable to PDL's shareholders of $12.3 million. A reconciliation of GAAP to non-GAAP financial results can be found in Table 3 at the end of this news release.
  • Cash and cash equivalents of $401.0 million as of September 30, 2018.
  • Completed a $25.0 million share repurchase program authorized in September 2017 by repurchasing 0.6 million shares of common stock in the open market during the quarter for $1.4 million.
  • Announced new share repurchase program of up to $100.0 million.

"Our third quarter revenues increased 8% from the prior year to $68 million, reflecting higher product sales and $42 million in royalty rights revenue that included an increase in fair value of the royalty rights from Assertio Therapeutics, formerly known as Depomed, as a result of our purchase of the remaining interest in royalty payments of this asset," said John P. McLaughlin, CEO of PDL. "We benefitted from a particularly strong showing during the quarter from the type 2 diabetes drug Glumetza®, and I'm pleased to report that overall the Assertio asset has performed substantially better than we expected. With Tekturna®, we are cautiously optimistic about the transition to a non-personal promotion campaign from a direct sales model, which we completed mid-way through the third quarter. Tekturna sales remained stable throughout the quarter, with the new sales strategy reducing costs and increasing profitability."

"We announced a new $100 million share repurchase program in late September after completing the previous program early in the third quarter," he added. "While to date we have been unable to execute any share buybacks under the new program due to blackout periods, we plan to begin aggressively repurchasing shares once the blackout is lifted."

"After serving as CEO for more than 10 years, I have informed the board of directors of my intention to retire as CEO at year-end 2018 while continuing to serve on the board," said McLaughlin. "It has been a pleasure to serve PDL and its shareholders. I'm gratified to announce our plan for PDL President, Dominique Monnet, to succeed me as CEO effective December 31, 2018 and to simultaneously join the PDL board. Dominique is a seasoned industry veteran with a track record of commercial success in biopharmaceutical development and has been an integral part of our management team for more than a year. I'm confident in Dominique's leadership abilities and am delighted to be transferring the CEO responsibilities to his very capable hands."

Mr. Monnet joined PDL as President in September 2017, bringing more than 30 years of leadership experience in the biotech and pharmaceutical industries. He was instrumental in overseeing global commercialization operations, including successful new product launches, while serving in senior management positions at Alexion Pharmaceuticals, Amgen and Schering-Plough.

"It is a privilege to succeed John as we continue to execute our strategy to accelerate PDL's growth and deliver value to our shareholders," said Monnet. "Under John's leadership, PDL built a very strong balance sheet and an impressive track-record of investments. As a result, we are exceptionally well positioned to pursue exciting acquisition and partnership opportunities and invest and nurture companies and products that have the potential to grow, succeed and return superior shareholder value. I am delighted that John has agreed to remain on the Board, and I look forward to my continued partnership with the teams at PDL, Noden and Lensar."

Revenue Highlights

  • Total revenues of $67.9 million for the three months ended September 30, 2018 included:
  • Total revenues for the third quarter of 2018 were $67.9 million, compared with $62.7 million for the third quarter of 2017, reflecting PDL's strategic shift to a pharmaceutical business model.
  • Total revenues for the nine months ended September 30, 2018 were $153.0 million, compared with $252.0 million for the nine months ended September 30, 2017:

Operating Expense Highlights

  • Operating expenses for the three months ended September 30, 2018 of $31.2 million increased $1.0 million from $30.1 million for the three months ended September 30, 2017. The increase was a result of the Noden Products and LENSAR contributing additional cost of product revenue of $6.0 million and $0.4 million, respectively, due to increased revenue from the Noden Products and recognition of costs of product revenue for ex-U.S. revenue and increased revenue from LENSAR, as well as general and administrative expenses increasing 10%, or $1.2 million, primarily due to stock-based compensation awards granted in the period, partially offset by lower asset management and asset purchase professional expenses. The increase in operating expenses was partially offset by lower intangible asset amortization expense due to the second quarter of 2018 impairment of the intangible assets related to the Noden Products, as well as by reduced sales and marketing expenses related to the change in marketing strategy of the Noden Products.
  • Operating expenses for the nine months ended September 30, 2018 were $237.1 million, a $149.0 million increase from $88.1 million for the prior-year period. The increase was primarily a result of the impairment of the Noden intangible asset of $152.3 million, as well as the Noden Products and LENSAR contributing additional cost of product revenue of $20.0 million and $4.4 million, respectively, which was due to increased revenue from the Noden Products and recognition of costs of product revenue for ex-U.S. revenue and increased revenue from LENSAR, which PDL did not begin to recognize until May 2017, partially offset by the decrease in fair value of the contingent liability.

Stock Repurchase Programs

  • From July 1, 2018 to July 5, 2018, the Company completed its $25.0 million stock repurchase program with the repurchase of 0.6 million shares of its common stock at a weighted average price of $2.44 per share, for a total of $1.4 million.
  • PDL repurchased 8.7 million shares of its common stock under the $25.0 million share repurchase program during the nine months ended September 30, 2018, for an aggregate purchase price of $25.0 million, or an average cost of $2.86 per share, including trading commission. All shares repurchased were retired.
  • Since initiating its first stock repurchase program in March 2017, the Company has used $55.0 million to repurchase a total of 22.1 million shares of its common stock.
  • On September 21, 2018, the Company's board of directors authorized the repurchase of issued and outstanding shares of the Company's common stock having an aggregate value of up to $100.0 million pursuant to a new share repurchase program.

Other Financial Highlights

  • PDL had cash and cash equivalents of $401.0 million as of September 30, 2018, compared with cash, cash equivalents and short-term investments of $532.1 million as of December 31, 2017.
  • The reduction in cash balance for the nine months ended September 30, 2018 was primarily a result of retiring the remaining $126.4 million of principal from PDL's 4.0% Convertible Senior Notes due 2018, plus $2.6 million of accrued interest, common stock repurchases of $25.0 million and the $20.0 million purchase of Assertio's remaining interest in royalty and milestone payments payable on sales of type 2 diabetes products licensed by Assertio, partially offset by the proceeds from royalty rights of $57.0 million.

Conference Call and Webcast Details

PDL will hold a conference call to discuss financial results and provide a business update at 4:30 p.m. Eastern time today, November 6, 2018. Slides to accompany the conference call are available in the Investor Relations section of www.pdl.com.

To access the live conference call via phone, please dial 844-535-4071 from the U.S. and Canada or 706-679-2458 internationally. The conference ID is 6461756. 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 U.S. and Canada or 404-537-3406 internationally. The replay passcode is 6461756.

To access the live and subsequently archived webcast of the conference call, go to the Company's website at www.pdl.com and go to the Investor Relations section and select "Events & Presentations."

About PDL BioPharma, Inc.

We seek to provide a significant return for our stockholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotechnology, 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 one debt transaction outstanding, representing deployed capital of $20.0 million: CareView; we have one hybrid royalty/debt transaction outstanding, representing deployed capital of $44.0 million: Wellstat Diagnostics; and we have five royalty transactions outstanding, representing deployed capital of $416.1 million, respectively: KYBELLA®, AcelRx, University of Michigan, Viscogliosi Brothers and Depomed (now Assertio Therapeutics). Our equity and loan investments in the Noden Products represent deployed capital of $191.2 million, respectively, and our converted equity and loan investment in LENSAR represents deployed capital of $40.0 million.

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 assets and business are disclosed in the risk factors contained in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2018 and subsequent filings. 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 OPERATIONS DATA

(In thousands, except per share amounts)




Three Months Ended


Nine Months Ended



September 30,


September 30,



2018


2017


2018


2017

Revenues









Royalties from Queen et al. patents


$

533



$

1,443



$

4,534



$

31,884


Royalty rights - change in fair value


42,184



35,353



66,117



132,224


Interest revenue


754



6,051



2,254



16,968


Product revenue, net


24,387



20,067



79,472



51,477


License and other


40



(165)



614



19,471


Total revenues


67,898



62,749



152,991



252,024











Operating Expenses









Cost of product revenue (excluding intangible amortization and impairment)


11,926



5,565



37,016



12,632


Amortization of intangible assets


1,577



6,275



14,254



18,438


General and administrative expenses


13,211



11,989



39,401



35,853


Sales and marketing


3,469



4,994



14,367



11,194


Research and development


672



605



2,149



6,652


Impairment of intangible assets






152,330




Change in fair value of anniversary payment and contingent consideration


302



700



(22,433)



3,349


Total operating expenses


31,157



30,128



237,084



88,118


Operating income (loss)


36,741



32,621



(84,093)



163,906











Non-operating expense, net









Interest and other income, net


1,581



238



4,871



726


Interest expense


(2,866)



(5,096)



(9,262)



(15,082)


Gain (loss) on bargain purchase




(2,276)





3,995


Total non-operating expense, net


(1,285)



(7,134)



(4,391)



(10,361)











Income (loss) before income taxes


35,456



25,487



(88,484)



153,545


Income tax expense (benefit)


9,900



4,755



(3,346)



65,180


Net income (loss)


25,556



20,732



(85,138)



88,365


Less: Net loss attributable to noncontrolling interests








(47)


Net income (loss) attributable to PDL's shareholders


$

25,556



$

20,732



$

(85,138)



$

88,412











Net income (loss) per share









Basic


$

0.18



$

0.14



$

(0.58)



$

0.56


Diluted


$

0.18



$

0.14



$

(0.58)



$

0.56











Shares used to compute income per basic share


143,171



151,146



147,159



156,802


Shares used to compute income per diluted share


144,224



152,317



147,159



157,529


 

TABLE 2

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEET DATA

(Unaudited)

(In thousands)




September 30,


December 31,



2018


2017

Cash, cash equivalents and short-term investments


$

400,984



$

532,114


Total notes receivable


$

70,966



$

70,737


Total royalty rights - at fair value


$

378,291



$

349,223


Total assets


$

984,427



$

1,243,123


Total convertible notes payable


$

122,780



$

243,481


Total stockholders' equity


$

739,387



$

845,890


 

TABLE 3

PDL BIOPHARMA, INC.

GAAP to NON-GAAP RECONCILIATION:

NET INCOME AND DILUTED EARNINGS PER SHARE

(Unaudited)

(In thousands)


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












Three Months Ended


Nine Months Ended



September 30,


September 30,



2018


2017


2018


2017

GAAP net income (loss) attributed to PDL's shareholders as reported


$

25,556



$

20,732



$

(85,138)



$

88,412


Adjustments to Non-GAAP net income (loss) (as detailed below)


(13,249)



975



126,925



(14,730)


Non-GAAP net income attributed to PDL's shareholders


$

12,307



$

21,707



$

41,787



$

73,682











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












Three Months Ended


Nine Months Ended



September 30,


September 30,



2018


2017


2018


2017

GAAP net income (loss) attributed to PDL's shareholders as reported


$

25,556



$

20,732



$

(85,138)



$

88,412


Adjustments:









Mark-to-market adjustment to fair value assets


(23,128)



(9,011)



(9,068)



(57,820)


Non-cash interest revenues


(79)



(670)



(229)



(823)


Non-cash stock-based compensation expense


2,596



939



4,814



3,014


Non-cash debt offering costs


1,834



2,801



5,745



8,195


Mark-to-market adjustment on warrants held


(40)



165



(114)



29


Impairment of intangible assets






152,330




Amortization of intangible assets


1,577



6,275



14,254



18,438


Mark-to-market adjustment of anniversary payment and contingent consideration


302



700



(22,433)



3,349


Income tax effect related to above items


3,689



(224)



(18,374)



10,888


Total adjustments


(13,249)



975



126,925



(14,730)


Non-GAAP net income


$

12,307



$

21,707



$

41,787



$

73,682


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) impairment of intangible assets, (7) amortization of intangible assets, (8) mark-to-market adjustment related to acquisition-related contingent considerations, and to adjust (9) 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.

PDL BioPharma, Inc. (PRNewsFoto/PDL BioPharma, Inc.)

 

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