On March 11, 2020 PDL BioPharma, Inc. ("PDL" or "the Company") (Nasdaq: PDLI) reported financial results for the three and twelve months ended December 31, 2019 (Press release, PDL BioPharma, MAR 11, 2020, View Source [SID1234555435]):
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Strong Start in the Implementation of Monetization Strategy – Accelerating Completion Timeline
In September 2019, the Company engaged financial advisors and initiated a review of its strategy; this review was completed in December 2019. At such time, management and the board of directors decided to halt the execution of the Company’s growth strategy, cease making additional strategic transactions and investments and pursue a formal process to unlock the value of its portfolio by monetizing its assets and ultimately distributing net proceeds to stockholders. In February 2020, the board of directors approved a formal plan of complete liquidation and passed a resolution to seek stockholder approval at its next Annual Stockholders’ Meeting (the "2020 Annual Meeting") to dissolve the Company under Delaware state law.
Subsequent to its announcement in December 2019, PDL has taken the following steps to monetize the assets of the Company and distribute net proceeds to its stockholders in the form of share repurchases, cash dividends or other distributions:
Board of directors authorized common stock and convertible note repurchases up to $275.0 million in mid-December 2019
Retired $119.3 million principal value of convertible notes, or 80% of the Company’s debt, in mid-December 2019, for $97.9 million of cash and 13.4 million shares of Company common stock. The Company also repurchased 3.2 million shares of Company common stock in this transaction
Immediately thereafter entered into a 10b5-1 program for $120.0 million to allow for the continued repurchase of convertible notes and the repurchase of common stock. The 10b5-1 program limit was set at approximately the amount remaining under the board of directors’ $275.0 million authorization after the mid-December 2019 convertible note repurchases. Pursuant to this program:
Retired $13.7 million principal value of convertible notes in 2020. Approximately $17.0 million of convertible notes remain outstanding
Retired 3.8 million shares of common stock through March 10, 2020
Engaged financial advisors to evaluate the sale of the entire Company, or the sale or distribution of its holdings of Evofem Biosciences, Inc. ("Evofem") common stock, the portfolio of royalty assets and the Company’s Noden and LENSAR subsidiaries
Negotiated a cooperation agreement with Engine Capital, Inc. that enables the Company to focus on the expeditious return of net proceeds to stockholders with input from a new board member with relevant experience in corporate sales process
As part of the monetization process, the Company has engaged the following parties:
BofA Securities, Inc. has been engaged by the Company to act as its financial advisor in connection with the potential sale of the Company or its royalty asset portfolio.
Torreya has been engaged to lead the effort in selling the Noden subsidiary or its assets and the Company’s equity stake in Evofem.
SVB Leerink has been engaged to evaluate opportunities available to LENSAR, with a focus on maximizing the value of the LENSAR subsidiary. PDL remains committed to LENSAR and the development of its next generation technology while it pursues the optimal path to monetize this investment. PDL’s past capitalization of LENSAR has positioned it for growth, which has resulted in positive revenue and volume growth and a current capitalization allowing it to continue with its growth initiatives. SVB Leerink has also been engaged to advise the Company’s management and board of directors on overall liquidation and distribution strategies.
"We are pleased with the progress we are making on the execution of our monetization strategy and with our results for the fourth quarter and full year 2019. While we wrote down the value of certain of our assets at year end, our strong operating results are a testament to the quality and intrinsic value of our assets," said Dominique Monnet, president and CEO of PDL.
"Based on the strong progress made to date and through the leadership of our board of directors and the commitment of our employees, we now believe that we can either execute a whole Company sale or monetize our key assets and distribute a significant portion of the net proceeds to our stockholders by the end of 2020. Further, we are confident this plan provides the best strategy to minimize costs and to maximize net proceeds to our stockholders."
While the Company pursues this monetization strategy, it will continue its efforts to minimize operating costs. A cost management committee of the board was formed to oversee these cost reduction initiatives.
Under the Company’s monetization plan, should PDL conclude that a whole Company sale will not optimize stockholder returns, it would then target the filing of a certificate of dissolution under Delaware law by the end of 2020, subject to the approval of the Company’s stockholders. The Company would remain post-2020 solely to manage potential litigation, unresolved claims, post-dissolution distributions and the monetization of any remaining assets, as well as address remaining stockholder matters and administrative issues.
Full-Year 2019 Revenues Exceeded Guidance Announced in Third Quarter Earnings Press Release
LENSAR product revenue of $30.7 million exceeded the Company’s upwardly revised guidance of $29.0 million.
Cash received from royalty assets totaled $79.3 million, significantly exceeding guidance of $60.0 – $65.0 million.
Noden product revenue of $55.1 million exceeded the guidance range of $50.0 – $55.0 million.
Fourth Quarter Financial Highlights
Total revenues were negative $5.8 million, including $21.0 million in product revenue and negative $26.8 million in revenue from royalty rights – change in fair value.
LENSAR revenues were $8.5 million, an increase of 19% over the prior-year period, with procedure volume up 41%.
Net cash from all royalty rights was $21.0 million, up from $20.9 million for the prior-year period.
U.S. market share for branded Tekturna and authorized generic of Tekturna of approximately 73% remained steady with the third quarter of 2019.
GAAP net loss was $54.9 million. Non-GAAP net income was $4.2 million. A reconciliation of GAAP to non-GAAP financial results can be found in Table 4 at the end of this news release.
Revenue Highlights
Total revenues for the fourth quarter of 2019 included $21.0 million in product revenue and negative $26.8 million in revenue from royalty rights – change in fair value.
Product revenue from the LENSAR Laser System was $8.5 million, a 19% increase from the fourth quarter of 2018. Revenue generated outside the U.S. accounted for the majority of the revenue increase. LENSAR procedure volume for the fourth quarter of 2019 increased 41% from the prior-year period.
Net royalty revenues from acquired royalty rights, which include cash royalties received and a change in fair value of the royalty rights assets, were negative $26.8 million compared with $19.1 million in the prior-year period. The decrease is primarily related to the decrease in fair value of the royalty rights for the Type 2 diabetes products acquired from Assertio Therapeutics. PDL received $21.0 million in net cash from all its royalty rights in the fourth quarter of 2019, up from $20.9 million in the prior-year period. See Table 3 for a rollforward of royalty asset for the fourth quarter and full year 2019 compared with the comparable periods in 2018.
Product revenue from Noden was $12.4 million compared with $18.8 million in the prior-year period. Revenues for the U.S. and rest of the world were $4.3 million and $8.1 million, respectively, compared with $9.8 million and $9.0 million, respectively, in the prior-year period. The U.S. market share for branded Tekturna and the authorized generic of Tekturna was 73%, relatively unchanged from the third quarter of 2019.
Total revenues for 2019 were $54.8 million and included $85.8 million in product revenue and negative $31.0 million in revenue from royalty rights – change in fair value.
Product revenue from the LENSAR Laser System was $30.7 million, a 25% increase over 2018. Revenue generated outside of the U.S. accounted for the majority of the increase. LENSAR procedure volume for 2019 increased 33% over the prior year.
Revenue from royalty rights – change in fair value was negative $31.0 million for 2019, compared with $85.3 million in 2018. The decrease is primarily related to a non-cash adjustment to the AcelRx and Assertio royalty asset fair values of negative $60.0 million and negative $46.3 million, respectively. PDL received $79.3 million in net cash from its royalty rights in 2019, compared with $78.0 million in 2018.
Product revenue from the Noden Products was $55.1 million compared with $80.8 million for the prior year. Sales for 2019 were comprised of $25.3 million in the U.S. and $29.8 million in the rest of the world, compared with $40.5 million and $40.3 million, respectively, in 2018. The decline in sales of branded Tekturna in the U.S. is due primarily to the launch of an authorized generic of Tekturna in the U.S. and the launch of a third-party generic of aliskiren late in the first quarter of 2019. The decline in sales in the rest of the world is due to lower sales volume of Rasilez in certain territories, in part reflecting additional measures to maximize product profitability.
Interest revenue decreased by $2.3 million from 2018 due to modifications to the Company’s agreement with CareView Communications ("CareView"), which deferred interest payments for 2019.
Royalties from PDL’s licensees to the Queen et al. patents were less than $0.1 million for 2019, compared with $4.5 million for 2018, reflecting the runout of the royalties on the sales of Tysabri.
Operating Expense Highlights
Operating expenses for the fourth quarter of 2019 were $64.0 million, a $52.4 million increase from the fourth quarter of 2018. The increase was primarily due to:
An impairment in the Noden intangible assets of $22.5 million due to a change in the strategy for Noden,
a prior-year benefit for the release of the Noden contingent consideration liability of $19.2 million with no comparable adjustment in the current year quarter,
a $10.8 million impairment of the CareView note receivable compared to an $8.2 million impairment in the prior year quarter,
higher R&D costs for LENSAR associated with its next-generation technology,
higher G&A expenses primarily due to higher compensation costs, mainly as a result of the prior-year expense reversal of a significant portion of the employee long-term incentive award,
increased professional service expense, and
an increase in cost of goods sold primarily due to Noden product sales outside of the United States, partially offset by:
a decrease in sales and marketing expenses for our Noden subsidiary.
Operating expenses for 2019 were $154.6 million, a $94.1 million decrease from the prior year. The decrease was primarily due to:
A $22.5 million impairment of the Noden intangible assets in the current year compared to a $152.3 million impairment in 2018,
lower intangible asset amortization expense of $9.5 million due to the 2018 impairment,
decreased sales and marketing expenses of $8.7 million primarily due to the cost savings from the change in our marketing strategy to a non-personal promotion strategy for Noden in anticipation of a launch of a third-party generic form of aliskiren. This non-personal promotion strategy was subsequently discontinued upon the launch of our authorized generic form of Tekturna, partially offset by:
the prior-year benefit from the release of the Noden contingent consideration liability of $41.6 million,
increased cost of goods sold of $5.2 million primarily due to termination provisions in a Noden supply agreement amended in June 2019 involving end of contract fees and increased LENSAR product sales,
increased research and development expenses of $4.4 million primarily related to the acquisition of intellectual property supporting our second-generation LENSAR product, and
a $10.8 million impairment of the CareView note receivable in 2019 compared to an $8.2 million impairment in 2018.
Other Financial Highlights
The market value of the Company’s investment in Evofem increased $18.3 million in the 2019 fourth quarter and $36.4 million in the 2019 full year. The Company acquired its investment in Evofem in two tranches in the second quarter of 2019, paying total consideration of $60.0 million.
On a GAAP basis, the net loss attributable to PDL’s stockholders for the fourth quarter of 2019 was $54.9 million, or $0.48 per share, compared with GAAP net income attributable to PDL’s stockholders of $16.3 million, or $0.11 per share on a fully diluted basis, for the prior year period. Non-GAAP net income attributable to PDL’s stockholders was $4.2 million for the fourth quarter of 2019, compared with non-GAAP net income of $15.7 million for the fourth quarter of 2018.
The GAAP net loss attributable to PDL’s stockholders for 2019 was $70.4 million, or $0.59 per share, compared with a GAAP net loss attributable to PDL’s stockholders of $68.9 million or $0.47 per share, for the prior year. Non-GAAP net income attributable to PDL’s stockholders was $39.1 million for 2019, compared with non-GAAP net income of $60.4 million for the prior-year.
PDL had cash and cash equivalents of $193.5 million as of December 31, 2019, compared with cash and cash equivalents of $394.6 million as of December 31, 2018.
The $201.1 million reduction in cash and cash equivalents during 2019 was primarily the result of the repurchase of convertible debt of $97.9 million, common stock repurchases of $86.9 million, the Company’s investment in Evofem of $60.0 million, net cash used in operations of $32.4 million and costs incurred in the exchange of convertible debt of $4.4 million. This reduction was partially offset by the proceeds from royalty rights of $79.3 million and cash proceeds from the sale of intangible assets of $5.0 million.
Stock Repurchase Programs
In January 2020, PDL began repurchasing shares of its common stock in the open market pursuant to the 10b5-1 program entered into in December 2019. The Company acquired 3.8 million shares for $12.9 million, at an average cost of $3.42 per share, including commissions through March 10, 2020.
Pursuant to this program, the Company also repurchased $13.7 million par value of convertible notes through February 2020.
Since initiating its first stock repurchase program in March 2017, the Company has repurchased 56.9 million shares for $167.9 million, at an average cost of $2.95 per share.
As of February 29, 2020, the Company had approximately 123.6 million shares of common stock outstanding.
Conference Call and Webcast
PDL will hold a conference call to discuss financial results and provide a business update at 4:30 p.m. Eastern time today. Slides to accompany the conference call will be available in the Investor Relations section of View Source." target="_blank" title="View Source." rel="nofollow">View Source
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 8017938. A telephone replay will be available beginning approximately one hour after the call through one week following the call, and can be accessed by dialing 855-859-2056 from the U.S. and Canada or 404-537-3406 internationally. The replay passcode is 8017938.
To access the live and subsequently archived webcast of the conference call, go to the Investor Relations section of View Source and select "Events & Presentations."