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PDLI-AxoGen Complete Financing Deal

Zacks Equity Research

PDL BioPharma, Inc. (PDLI) and AxoGen, Inc. (AXGN) recently completed a structured financing transaction. As per the financing transaction, PDL BioPharma paid AxoGen $20.8million for royalties on certain revenues of the latter.

Of the $20.8million paid to AxoGen, PDL BioPharma paid $19.1 million in cash on October 5, 2012 as per a Revenue Interests Purchase Agreement. Under the eight year Revenue contract, PDL BioPharma is entitled to receive royalties on the basis of AxoGen revenues, which depends on certain minimum payment requirements starting in the fourth quarter of 2014.

The agreement also allows AxoGen to repurchase the revenue contract at the end of the fourth year. AxoGen also has the right to call the contract between the fifth and the eighth year.

In August this year, AxoGen signed a two-year Interim Revenue Interest Purchase Agreement with PDL BioPharma, under which the latter paid $1.7 million to AxoGen in respect to the purchase of specified Acquired Revenues.

We remind investors that in September this year, PDL BioPharma announced its third quarter 2012 royalty revenue guidance. The company expects to generate around $85 million as royalty revenues during the period which represents 2% year over year growth.

PDL BioPharma receives royalties on worldwide net sales of Roche Holdings Ltd.'s (RHHBY) Avastin and Herceptin; Roche/Novartis’ (NVS) Lucentis and Xolair; and Elan Corporation/Biogen Idec’s (ELN/BIIB) Tysabri. The company will also receive royalties on Roche’s Perjeta (pertuzumab), which was launched in the US in June 2012.

Our Recommendation

Currently, we have a Neutral recommendation on PDL BioPharma. Both PDL BioPharma and AxoGen carry a Zacks #3 Rank (Hold) in the short term.

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