PDLI - Sector: Healthcare---Industry: Biotechnology & Drugs

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PDLI Meets EPS, Beats on Top Line

Zacks Equity Research, On Tuesday November 16, 2010, 10:45 am EST

PDL BioPharma Inc. (NasdaqGS: PDLI - News) posted third quarter earnings of 25 cents per share, in line with the Zacks Consensus Estimate, but below the year-ago figure of 29 cents. Earnings declined in the quarter, despite the increase in revenue, due to higher selling and general expenses.

Quarterly Details

Third quarter revenue of $86.4 million was higher than the Zacks Consensus Estimate of $84 million and about 21% above the year-ago revenue. The top-line increase resulted from higher 2Q10 sales of Roche's (Other OTC: RHHBY.PK - News) Avastin, Herceptin, and Lucentis, and Biogen/Elan's (BIIB/ELN) Tysabri, on which PDL BioPharma received royalties in 3Q10. Revenue was, however, in line with the company's guidance of $86 million provided in September 2010.

Quarterly general and administrative expenses increased from $5.3 million in the year-earlier quarter to $11.1 million in the third quarter of 2010. Legal costs of $8.7 million associated with the MedImmune and Roche litigations perpetrated the rise in expenses.

The company has been making changes to its capital structure to provide better returns to its shareholders. The company no longer has any 2023 notes outstanding. In October, the company completed an exchange of $92 million of the 2012 notes in which the note-holders received $92 million in new 2.875% convertible senior notes due February 15, 2015. Besides, the company sold another $88 million of the new 2015 notes.

On October 1, 2010, the company paid a dividend of 50 cents to all shareholders of record as of September 15, 2010. PDL BioPharma said that it will provide revenue guidance for the fourth quarter in early December.

Roche Litigation

The company provided an update on the Genentech/Roche/Novartis (NYSE: NVS - News) EU patent disagreement. The company is reasserting the validity of the supplementary protection certificates (SPCs) granted to it by countries in Europe, which Roche has questioned. Roche is asserting that it does not owe PDL BioPharma royalties on sales of Avastin, Herceptin, Lucentis and Xolair manufactured and sold outside the US.

PDL has filed a complaint against Roche and Novartis in Nevada to enforce its rights against Roche under the 2003 settlement agreement. PDL believes that Roche has breached the agreement, which could lead to payment of liquidated and other damages of up to $1 billion by Roche, including a retroactive royalty of 3.75% on past US sales.

In November 2010, Roche filed a motion claiming that the complaint should be dismissed as the 2003 agreement relates only to PDL's US patents and Nevada does not have jurisdiction over Roche. PDL BioPharma is expected to respond to the motion in December 2010. Meanwhile, Novartis is also expected to respond to PDL's complaint in December 2010.

Roche had paid royalty on products sold and manufactured outside the US in August 2010.  The next payment is due in November 2010. PDL is, however, not sure if Roche will pay royalties on international sales, estimated to be about 30% of overall sales in November.

Our View

We currently have a Neutral recommendation on PDL BioPharma. We are encouraged by the company's strong revenue growth and its initiatives to change its capital structure. However, we prefer to remain on the sidelines until the Roche litigation resolves. Apart from that, the Queen patents, from which the company derives a significant portion of its revenue, are set to expire in 2013-14. 

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PDL BioPharma Provides Fourth Quarter 2010 Revenue Guidance of $74 Million

INCLINE VILLAGE, Nev., Dec. 1, 2010 /PRNewswire-FirstCall/ -- PDL BioPharma, Inc. (PDL) (Nasdaq:PDLI - News) today announced revenue guidance for the fourth quarter ending December 31, 2010 of approximately $74 million, as compared with actual results of $58.3 million for the fourth quarter of 2009, a 27 percent year-over-year increase.  The growth is primarily driven by increased third quarter 2010 sales of Avastin®, Herceptin®, Lucentis® and Tysabri® for which PDL receives royalties in the fourth quarter of 2010.  The royalty payment received from Genentech included royalties generated on all worldwide sales.

Sales of Avastin, Herceptin and Lucentis are subject to a tiered royalty rate for product that is made or sold in the United States and a flat royalty rate of three percent for product that is manufactured and sold outside of the United States.  The net sales thresholds and the applicable royalty rates for product that is made or sold in the United States are outlined below:   

Royalty Rate
 
Net sales up to $1.5 billion
3.0%
 
Net sales between $1.5 billion and $2.5 billion
2.5%
 
Net sales between $2.5 billion and $4.0 billion
2.0%
 
Net sales exceeding $4.0 billion
1.0%
 
Reported sales for Avastin increased 8.7 percent in the third quarter of 2010 when compared to the same period in 2009. Roche recently reported that global sales of Avastin for advanced colorectal, breast, lung and kidney cancer, and for relapsed glioblastoma, rose 11 percent in the first nine months of 2010 driven by strong positive uptake of the product overall.  Roche also reported that slower U.S. sales, especially in the third quarter, reflected regulatory and reimbursement uncertainty regarding the metastatic breast cancer indication.  Contributing to increased Avastin royalties were sales of Avastin that was both manufactured and sold outside the United States.  Ex-U.S. manufactured and sold Avastin sales represented 26 percent of total Avastin sales; there were no sales of ex-U.S. manufactured and sold Avastin prior to the fourth quarter of 2009. 

Reported sales for Herceptin increased 10.2 percent in the third quarter of 2010 when compared to the same period in 2009.  Roche recently announced that global sales of Herceptin for HER2-positive breast cancer and advanced stomach cancer increased eight percent in the first nine months of 2010 driven by further penetration in the early and metastatic breast cancer settings, particularly in emerging markets.  Additionally, Roche reported that sales continue to benefit from uptake in advanced HER2-positive stomach cancer in Europe and other markets.  Also contributing to increased Herceptin royalties were sales of Herceptin that was both manufactured and sold outside the United States.  Ex-U.S. manufactured and sold Herceptin sales represented 40 percent of total Herceptin sales in the third quarter of 2010 as compared with 22 percent in the third quarter of 2009.

Reported sales for Lucentis increased 30.8 percent in the third quarter of 2010 when compared to the same period in 2009.  Lucentis is approved for the treatment of age-related macular degeneration in the United States and in Europe and received approval for the treatment of macular edema following retinal vein occlusion in June 2010 in the United States.  Roche and Novartis recently reported that sales grew by 29 percent and 30 percent for the first nine months of 2010 in the United States and internationally, respectively.

Reported sales for Tysabri increased 10.9 percent in the third quarter of 2010 when compared to the same period in 2009.  Biogen Idec recently announced that at the end of September 2010, approximately 55,100 patients were on therapy worldwide representing an increase of 19 percent over the approximately 46,200 patients who were on therapy at the end of September 2009.  Tysabri royalties are determined at a flat rate as a percent of sales regardless of location of manufacture or sale.

The sales information presented above is based on information provided by PDL's licensees in their quarterly reports to the Company as well as from public disclosures made by PDL's licensees.

About PDL BioPharma

PDL pioneered the humanization of monoclonal antibodies and, by doing so, enabled the discovery of a new generation of targeted treatments for cancer and immunologic diseases. PDL is focused on maximizing the value of its antibody humanization patents and related assets. The Company receives royalties on sales of a number of humanized antibody products marketed by leading pharmaceutical and biotechnology companies today based on patents which expire in late 2014. For more information, please visit www.pdl.com.

NOTE: PDL BioPharma and the PDL BioPharma logo are considered trademarks of PDL BioPharma, Inc.

Forward-looking Statements

This press release contains forward-looking statements. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those, expressed or implied, in these forward-looking statements. Factors that may cause differences between current expectations and actual results include, but are not limited to, the following:


•The expected rate of growth in royalty-bearing product sales by PDL's existing licensees;

•The relative mix of royalty-bearing Genentech products manufactured and sold outside the U.S. versus made or sold in the U.S.;

•The ability of our licensees to receive regulatory approvals to market and launch new royalty-bearing products and whether such products, if launched, will be commercially successful;

•Changes in any of the other assumptions on which PDL's projected royalty revenues are based;

•The outcome of pending litigation or disputes;

•The change in foreign currency exchange rate; and

•The failure of licensees to comply with existing license agreements, including any failure to pay royalties due.


Other factors that may cause PDL's actual results to differ materially from those expressed or implied in the forward-looking statements in this press release are discussed in PDL's filings with the SEC, including the "Risk Factors" sections of its annual and quarterly reports filed with the SEC. Copies of PDL's filings with the SEC may be obtained at the "Investors" section of PDL's website at www.pdl.com. PDL expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in PDL's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based for any reason, except as required by law, even as new information becomes available or other events occur in the future. All forward-looking statements in this press release are qualified in their entirety by this cautionary statement.

[setravis]

PDL Biopharma(PDLI) was a notable winner on Monday after legendary hedge fund manager Seth Klarman's Baupost group disclosed a new position in the company. The fund bought 5.6 million shares in the company, making it among the top ten holdings in the portfolio by market value.

Day's Range: 5.34 - 5.60
52wk Range: 4.81 - 7.30
Volume: 5,696,399
Avg Vol (3m): 2,376,990
Market Cap: 762.65M
P/E (ttm): 6.86
EPS (ttm): 0.80
Div & Yield: N/A (N/A)

Technicals
Gap Up

Last Price Quote is:
RS Rating: 30 

[setravis]

Yesterday's trading session produced a nice move north...
With some good volume

Technicals
Close Above the 50-day EMA
Close Above the 13-day EMA
Most Actives
Gap Up
Percentage Gainer

Last Price Quote is:
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RS Rating: 23