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Accelerating asset monetization

PDL BioPharma 30 March 2020 Update
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PDL BioPharma

Accelerating asset monetization

Financial update

Pharma & biotech

30 March 2020

Price

US$2.72

Market cap

US$336m

Net cash ($m) at 31 December 2019
(plus repurchases)

149.9

Shares in issue

123.6m

Free float

95.3%

Code

PDLI

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(19.5)

(18.3)

(25.5)

Rel (local)

(5.7)

4.1

(17.7)

52-week high/low

US$3.85

US$2.13

Business description

As of December 2019, PDL BioPharma has ceased to make additional strategic transactions and investments and is pursuing a formal process to unlock the value of its portfolio by monetizing its assets and ultimately distributing net proceeds to shareholders.

Next event

FDA approval of Phexxi

May 2020

Analysts

Maxim Jacobs

+1 646 653 7027

Wiktoria O’Hare

+1 646 653 7028

PDL BioPharma is a research client of Edison Investment Research Limited

PDL BioPharma announced that the company is targeting either a complete sale or the monetization of its four key assets by the end of 2020, much faster than the two to three years previously communicated. To this end, the company has enlisted the help of three different advisors, namely Bank of America for the sale of the entire company or the royalty portfolio, Torreya for the sale of Noden and Evofem and SVB Leerink to investigate opportunities for LENSAR. The company will return the value to shareholders in as tax efficient a manner as possible likely via share repurchases or dividends.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

198.1

78.8

0.45

0.0

6.0

N/A

12/19

54.8

(65.6)

(0.60)

0.0

N/A

N/A

12/20e

115.3

6.5

0.05

0.0

54.4

N/A

12/21e

126.0

12.2

0.09

0.0

30.2

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Timelines accelerated

The company now plans to either sell itself in its entirety or sell or spin off its assets separately by the end of 2020, a significant acceleration compared to the previous estimate of two to three years. PDL has stated that a major reason for this acceleration was to limit the time that PDL remains a public company as there is significant expense associated with that, which would reduce the amount that could be returned to shareholders.

LENSAR sales up 25% for the year

The LENSAR femtosecond cataract laser business had product revenue of $8.5m in the quarter, up 19% compared to Q418 and up 5% sequentially. For the full year 2019, sales are up 25%. Importantly, procedure volume for the year is up 33% compared to 2018, with over 100,000 procedures worldwide and 13% market share.

Significant Evofem catalyst expected in May

Evofem, a clinical-stage biopharmaceutical company, is developing Phexxi (previously Amphora), a hormone-free contraceptive gel that could address a very large market. According to the Centers for Disease Control and Prevention (CDC), 61.7% of the 60.9 million women aged 15–44 use contraception. Evofem re-submitted its New Drug Application (NDA) for Phexxi and a response from the FDA is expected by 25 May 2020.

Valuation: $689m or $5.57 per share

We have decreased our valuation of PDL from $713m or $5.73 per basic share, to $689m or $5.57 per share. This is mostly the result of lower net cash as well as a reduction in the value of the CareView asset, which the company has almost entirely written down. We will revise our model further as the company progresses through the monetization process.

Q4 results

PDL reported net product revenue (LENSAR and Noden) of $21.0m for the quarter, down 19.2% compared to Q418 due to weakness at Noden as a Tekturna generic has been available in the United States since March. Noden sales of $12.4m were down 33.8% compared to Q418 although slightly up compared to Q319. Additionally, the company has written down the value of the Noden asset to $10.1m, taking a $22.5m charge. The LENSAR femtosecond cataract laser business had product revenue of $8.5m in the quarter, up 18.8% compared to Q418 and up 5.5% sequentially. For the full year 2019, LENSAR sales are up 24.7%. Importantly, procedure volume for the year is up 33% compared to 2018, with over 100,000 procedures worldwide and 13% market share.

Royalty rights were a negative $26.8m for the quarter, mainly due to a $46.3m reduction in the value of the Assertio royalty assets. This reduction is mainly a result of weaker Glumetza sales as well as due to delays in the international launches of some of the other assets in the Assertio portfolio.

PDL reported a net loss of $54.9m for Q419, which includes the $22.5m reduction in the value of Noden, the $46.3m reduction in the value of the Assertio assets and a $10.8m impairment charge on the CareView note. These one-time charges were partially offset by an $18.3m increase in the value of the Evofem asset due to an increase in its stock price during the period.

Valuation

We have not made any changes to our valuation approach based on the company’s strategy to divest/monetize assets or sell the company, but will do so as asset sales occur. We have decreased our valuation of PDL from $713m or $5.73 per basic share to $689m or $5.57 per share. The decrease is mostly the result of lower net cash and a reduction in the value in our model for the CareView asset (which was almost entirely written down by the company). There were smaller reductions in the values for the Viscogliosi Brothers (VB) and University of Michigan assets. The reductions were partly offset by an increase in the value of LENSAR. We are not reducing our estimated values for Noden and Assertio as our model already reflects some of the recent weakness in operating results. We will change our model further as the company progresses through the monetization process.

Exhibit 1: PDL valuation table

Royalty/note

Type

Expiration year

PDL balance sheet carrying value ($m)

NPV
($m)

Assertio (formerly Depomed)

Royalty on Glumetza and other products

2024

$218.7

$216.3

VB

Royalty on Spine Implant

Undisclosed

$13.6

$12.6

University of Michigan

Royalty on Cerdelga

2022

$20.4

$10.6

Wellstat

Note (impaired)

Unknown

$50.2

$50.2

Hyperion

Note (impaired)

Unknown

$1.2

$1.2

LENSAR

Equity

N/A

$68.8

AcelRx

Royalty on Zalviso

2027

$13.0

$10.2

CareView

Note (impaired)

2022

$0.7

$0.7

Noden

Equity

N/A

$10.1

$14.7

Kybella

Royalty

Unknown

$0.6

$0.7

Evofem

Equity

N/A

$82.3

$153.2

Total

 

 

 

$539

Net cash (Q419 + debt transaction and stock buyback) ($m)

$149.9

Total firm value ($m)

$689

Total basic shares (m)

123.6

Value per basic share ($)

$5.57

Total options (m)

0.0

Total number of shares (m)

123.6

Diluted value per share ($)

$5.57

Source: Edison Investment Research

Financials

PDL ended Q419 with $193.5m in cash. Subsequent to the end of the quarter, the company repurchased approximately 3.8m shares for $12.9m and repurchased $13.7m worth of debt. Following the note repurchases, PDL is left with $17.0m in debt. We continue to believe PDL has enough capital to execute on the remainder of the repurchase program and will be able to initiate additional repurchase programs (or dividends) once assets are monetized successfully.

We have not changed our 2020 estimates markedly following Q419 earnings and are introducing 2021 estimates (though these do not include any asset sales as it would be difficult to know the timing and form of these upcoming transactions). For 2021, we are modelling $126.0m in sales, an increase of 9.3% over our estimated 2020 revenue number. We expect normalized profits of $12.2m, an increase from the $6.5m we expect in 2020.

Exhibit 2: Financial summary

$000s

2018

2019

2020e

2021e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

198,110

54,757

115,251

125,952

Cost of Sales

(48,460)

(53,619)

(53,106)

(56,522)

Gross Profit

149,650

1,138

62,146

69,430

General & Administrative

(62,559)

(54,080)

(56,243)

(58,493)

EBITDA

 

 

84,136

(60,250)

2,194

7,229

Operating Profit (before amort. and except.)

 

 

84,136

(60,250)

2,194

7,229

Intangible Amortisation

(15,831)

(6,306)

(6,306)

(6,306)

Other

0

0

0

0

Exceptionals

(118,899)

(33,258)

0

0

Operating Profit

(50,594)

(99,814)

(4,112)

923

Net Interest

(5,328)

(5,374)

4,295

4,958

Other

0

31,448

0

0

Profit Before Tax (norm)

 

 

78,808

(65,624)

6,490

12,187

Profit Before Tax (FRS 3)

 

 

(55,922)

(73,740)

184

5,881

Tax

(12,937)

3,049

(39)

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

65,871

(62,575)

6,451

12,187

Profit After Tax (FRS 3)

(68,859)

(70,691)

145

5,881

Minority interest

0

280

0

0

Profit After Tax less Minority Interest (FRS 3)

(68,859)

(70,411)

145

5,881

Average Number of Shares Outstanding (m)

145.7

118.6

124.4

129.4

EPS - normalised ($)

 

 

0.45

(0.60)

0.05

0.09

EPS - FRS 3 ($)

 

 

(0.47)

(0.59)

0.00

0.05

Dividend per share (c)

0.00

0.00

0.00

0.00

Gross Margin (%)

75.5

2.1

53.9

55.1

EBITDA Margin (%)

42.5

-110.0

1.9

5.7

Operating Margin (before GW and except.) (%)

42.5

-110.0

1.9

5.7

BALANCE SHEET

Fixed Assets

 

 

446,519

402,224

358,934

324,421

Intangible Assets

51,319

23,298

23,298

23,298

Tangible Assets

7,387

5,520

6,673

7,932

Royalty rights

376,510

266,196

221,753

185,981

Other

11,303

107,210

107,210

107,210

Current Assets

 

 

517,217

313,895

345,632

404,840

Stocks

0

0

0

0

Debtors

21,648

13,552

13,552

13,552

Cash

394,590

193,451

225,188

284,396

Other

100,979

106,892

106,892

106,892

Current Liabilities

 

 

(52,470)

(45,693)

(45,676)

(45,676)

Creditors

(13,142)

(17,370)

(17,370)

(17,370)

Short term borrowings

0

0

0

0

Other

(39,328)

(28,323)

(28,306)

(28,306)

Long Term Liabilities

 

 

(181,487)

(77,148)

(77,148)

(77,148)

Long term borrowings

(124,644)

(27,250)

(27,250)

(27,250)

Other long term liabilities

(56,843)

(49,898)

(49,898)

(49,898)

Net Assets

 

 

729,779

593,278

581,741

606,437

Minority Interests

0

0

0

0

Shareholder equity

 

 

729,779

593,278

581,741

606,437

CASH FLOW

Operating Cash Flow

 

 

(13,425)

(32,443)

(10,299)

(11,077)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(4,523)

(2,463)

(1,153)

(1,260)

Acquisitions/disposals

57,969

79,272

69,788

71,545

Financing

0

0

0

0

Dividends

(48)

0

0

0

Other

(46,202)

(143,190)

(26,600)

0

Net Cash Flow

(6,229)

(98,824)

31,736

59,208

Opening net debt/(cash)

 

 

(283,785)

(269,946)

(166,201)

(197,938)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

(7,610)

(4,921)

0

0

Closing net debt/(cash)

 

 

(269,946)

(166,201)

(197,938)

(257,146)

Source: company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by PDL BioPharma and prepared and issued by Edison, in consideration of a fee payable by PDL BioPharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

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New York +1 646 653 7026

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by PDL BioPharma and prepared and issued by Edison, in consideration of a fee payable by PDL BioPharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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