On August 4, 2016 PDL BioPharma, Inc. (PDL or the Company) (NASDAQ: PDLI) reported financial results for the second quarter ended June 30, 2016 including:
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Total revenues of $21.0 million and $124.2 million for the three and six months ended June 30, 2016, respectively (Press release, PDL BioPharma, AUG 4, 2016, View Source [SID:1234514289]).
GAAP diluted EPS of $0.03 and $0.37 for the three and six months ended June 30, 2016, respectively.
GAAP net income of $4.1 million and $60.0 million for the three and six months ended June 30, 2016, respectively.
Non-GAAP diluted earnings per share (EPS) of $0.09 and $0.61 for the three and six months ended June 30, 2016, respectively.
Non-GAAP net income of $15.1 million and $100.2 million for the three and six months ended June 30, 2016, respectively.
The largest component of the difference in non-GAAP measure compared to GAAP is the exclusion of mark-to-market reduction in fair value of our investments in royalty rights. A full reconciliation of all components of the GAAP to non-GAAP quarterly financial results can be found in Table 4 at the end of this release.
Revenue Highlights
Total revenues of $21.0 million for the three months ended June 30, 2016 included:
Royalties from PDL’s licensees to the Queen et al. patents of $14.2 million, which consisted of royalties earned on sales of Tysabri under a license agreement associated with the Queen et al. patents;
Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of negative $0.9 million, which consisted of the change in estimated fair value of our royalty right assets and primarily related to the Depomed, Inc., University of Michigan and Viscogliosi Brothers, LLC royalty rights acquisitions;
Interest revenue from notes receivable financings to late-stage healthcare companies of $7.3 million; and
License and other revenues of $0.3 million.
Total revenues decreased by 85 percent for the three months ended June 30, 2016, when compared to the same period in 2015.
The decrease in royalties from PDL’s licensees to the Queen et al. patents is due to the expiration of the patent license agreement with Genentech, Inc. PDL continues to receive Queen et al. patent royalties on sales of Tysabri based on the sales of product manufactured prior to patent expiry, the amount and timing of which is uncertain.
The decrease in royalty rights – change in fair value was driven by the $7.4 million decrease in the fair value of the Depomed royalty rights assets primarily as a result of higher gross-to-net adjustments for Glumetza, and a $7.6 million decrease in the fair value of the University of Michigan royalty right asset as a result of a delay in national pricing and reimbursement decisions in the European Union and Japan.
PDL received $14.7 million in net cash royalty payments and milestone payments from its acquired royalty rights in the second quarter of 2016, compared to $1.2 million for the same period of 2015. Of these payments from its acquired royalty rights, $6.0 million was related to the FDA approval milestone for Jentadueto XR.
The decrease in interest revenues was primarily due to ceasing to accrue interest due from Direct Flow Medical, Inc. as a result of the loan being impaired.
Total revenues decreased by 57 percent for the six months ended June 30, 2016, when compared to the same period in 2015.
The decrease in royalties from PDL’s licensees to the Queen et al. patents is due to the expiration of the patent license agreement with Genentech, Inc.
The decrease in royalty rights – change in fair value was driven by the $55.3 million decrease in the fair value of the Depomed royalty rights assets, and a $6.0 million decrease in the fair value of the University of Michigan royalty right asset.
PDL received $31.9 million in net cash royalty payments and milestone payments from its acquired royalty rights in the six months ended June 30, 2016, compared to $2.1 million for the same period of 2015.
The decrease in interest revenues was primarily due to reduced interest from Direct Flow Medical, Inc.
Operating Expense Highlights
Operating expenses were $9.9 million for the three months ended June 30, 2016, compared to $7.4 million for the same period of 2015. The increase in operating expenses for the three months ended June 30, 2016, as compared to the same period in 2015, was primarily a result of acquisition-related costs of $3.0 million for the Noden Pharma DAC (Noden) transactions which were advanced to Noden, and are expected to be repaid to PDL by year end through an intercompany arrangement.
Operating expenses were $19.8 million for the six months ended June 30, 2016, compared to $15.1 million for the same period of 2015. The increase in operating expenses for the six months ended June 30, 2016, as compared to the same period in 2015, was a result of the acquisition-related costs from the Noden transactions.
Other Financial Highlights
PDL had cash, cash equivalents, and investments of $190.9 million at June 30, 2016, compared to $220.4 million at December 31, 2015.
The decrease was primarily attributable to the restriction of $105.9 million in cash for the Noden transactions, repayment of the March 2015 Term Loan for $25.0 million, payment of dividends of $16.4 million, and an additional note receivable purchase of $5.0 million, partially offset by proceeds from royalty right payments of $31.9 million and cash generated by operating activities of $94.8 million.
Net cash provided by operating activities in the six months ended June 30, 2016 was $94.8 million, compared with $155.9 million in the same period in 2015.
Recent Developments
Noden Transactions
The acquisition of Tekturna by Noden and PDL’s funding of the equity investment in Noden occurred on July 1, 2016.
PDL expects to make equity contributions to Noden Pharma DAC and an affiliate totaling $107 million in the first year of the transaction, which includes an initial equity investment of $75 million and an additional $32 million equity contribution commitment which will be made on the one-year anniversary of the closing of the transaction. In addition, PDL provided Noden with a loan and loan commitments of up to an aggregate of $75 million, the majority of which PDL expects will be repaid in the next 45 days once Noden secures a debt facility from a third party. PDL also may contribute additional amounts of funding depending on the total amount of debt obtained by Noden, and as needed for specified milestone payments or other purposes.
Noden closed its transaction relating to a purchase agreement with Novartis AG (Novartis) to acquire exclusive worldwide rights to manufacture, market, and sell the branded prescription medicine product sold under the name Tekturna and Tekturna HCT in the United States and Rasilez and Rasilez HCT in the rest of the world. The product’s active ingredient is aliskiren, which is indicated for the treatment of hypertension. The drug was previously marketed by Novartis and had global sales in 2015 of $154 million.
PDL has a majority equity interest ownership in Noden. Given this majority ownership by PDL, the financial statements of Noden will be consolidated with PDL beginning in Q3 2016, and is expected to be accretive to PDL’s cash earnings.
ARIAD Royalty Agreement Second Tranche Payment
On July 28, 2016, PDL funded the second tranche of $50.0 million due on the first anniversary of the closing date under the terms of the ARIAD Royalty Agreement.
As a result of the second tranche payment, PDL’s royalty percentage will increase to 5.0% of the U.S. and European net revenues of Iclusig and 5.0% of the payments ARIAD receives elsewhere in the world until December 31, 2018. Beginning January 1, 2019 and thereafter, the royalty rate will increase to 6.5% in all jurisdictions.
Dividend Policy
On August 3, 2016, the PDL board of directors decided to eliminate the quarterly cash dividend payment.