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Dissolution set for the year end

PDL BioPharma 17 November 2020 Update
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PDL BioPharma

Dissolution set for the year end

Financial update

Pharma & biotech

17 November 2020

Price

US$2.41

Market cap

US$275m

Net cash ($m) at 30 September 2020 (excluding LENSAR)

67.8

Shares in issue

114.2m

Free float

96.5%

Code

PDLI

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.9

(22.0)

6.5

Rel (local)

(0.2)

(27.5)

(8.4)

52-week high/low

US$3.36

US$1.91

Business description

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

Next events

Dissolution/delisting

Year-end 2020

Sale of additional royalty assets

2020/21

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

PDL BioPharma is a research client of Edison Investment Research Limited

PDL has made significant progress with its stated objective of monetizing and liquidating the company. Most recently, in October, LENSAR was spun off to PDL shareholders and the previously announced sale of Noden was completed in September. Also, the Kybella, Zalviso and Coflex royalties were sold to SWK Holdings for $4.35m and a settlement agreement was reached with Wellstat in August. The main assets remaining to be disposed of are the Assertio royalties and the University of Michigan royalties on Cerdelga.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

32.0

(30.4)

(0.16)

0.0

N/A

N/A

12/19

30.7

(44.6)

(0.44)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. We are also no longer providing forecasts for financials due to the upcoming dissolution of the company.

Delisting at end of 2020

PDL is to file a certificate of dissolution with the State of Delaware on 4 January 2021 and the stock will be delisted after 31 December 2020. The company will continue to exist for a minimum of three years to settle any remaining business.

Noden sold, but more payments to come

PDL divested its Noden subsidiary in September to Stanley Capital, a private equity firm that focuses on healthcare, technology and sustainability. PDL received $12.2m at deal closure and expects to receive an additional $33m in equal quarterly installments beginning in January 2021 and continuing through October 2023. There may also be two contingent payments totaling $3.25m, although the conditions for those payments have not been disclosed. There is an additional $0.52m in VAT reimbursement expected in 2021 and $3.86m in four equal quarterly installments in 2023.

Wellstat settlement payments expected in 2021

PDL received $7.5m upon the signing of its settlement with Wellstat. The remainder of the payments may be paid in two different methods. They can either be split, with $5m paid by 10 February 2021 and $55m by 26 July 2021 ($67.5m in total including the upfront), or paid as a lump sum of $67.5m by 26 July 2021 ($75m in total including the upfront). If payment is not made, Wellstat will be liable for $92.5m with credit for any additional payments made.

Valuation: $380m or $3.33 per share

We have decreased our valuation of PDL from $506m or $4.44 per basic share to $380m or $3.33 per share. The decrease is mainly due to the removal of the NPV of LENSAR and the $42.7m in cash it took with it in the spinoff. It is important to note that while we still maintain a valuation, we are no longer providing financial forecasts for PDL for future periods due to the dissolution.

A few assets remaining

PDL has made significant progress in the monetization and liquidation of the company’s assets. LENSAR was spun off in the form of a dividend of all outstanding LENSAR shares held by PDL to PDL shareholders and is now trading on Nasdaq with the LNSR ticker. Net assets attributable to LENSAR as of the end of Q320 was $112.4m, including $42.7m in cash.

Earlier in September, PDL divested its Noden subsidiary to Stanley Capital, a private equity firm that focuses on healthcare, technology and sustainability. PDL received $12.2m at deal closure and expects an additional $33m in equal quarterly installments beginning in January 2021 and continuing through to October 2023. There may also be two contingent payments totaling $3.25m, although the conditions for those payments have not been disclosed. An additional $0.52m in VAT reimbursement is expected in 2021 followed by $3.86m in four equal quarterly installments in 2023.

On 12 August the company announced that it had settled litigation related to Wellstat Diagnostics. Under the terms of the agreement, PDL received $7.5m upfront. The remainder of the payments may be paid in two different methods. They can either be split with $5m paid by 10 February 2021 and $55m by 26 July 2021 ($67.5m total including the upfront), or paid as a lump sum of $67.5m by 26 July 2021 ($75m total including the upfront). If payment is not made, Wellstat will be liable for $92.5m with credit for any payments made.

The main assets remaining to be disposed of are the Assertio royalties and the University of Michigan royalties on Cerdelga. PDL continues to evaluate a sale of these assets under advisement from Bank of America Securities and if unable to consummate an appropriately valued sale, PDL is prepared to retain the assets and distribute royalty revenues to shareholders. The company also currently holds 3.3m warrants in Evofem with an exercise price of $6.38 per share, which is well above the current share price.

Valuation

We have decreased our valuation of PDL from $506m or $4.44 per basic share to $380m or $3.33 per share. The decrease is mainly due to the removal of the NPV of LENSAR, which we had previously valued at $64.4m, and the $42.7m in cash it took with it in the spinoff. Note that we have also reduced the value of the Wellstat and Noden assets but that is simply due to the receipt of upfront payments during Q3.

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

$200.5

216.3

University of Michigan

Royalty on Cerdelga

2022

$17.5

10.6

Wellstat

Note (impaired)

Unknown

$50.2

54.5

Noden

Equity

N/A

N/A

30.7

Total

 

 

 

312

Net cash (Q320 less LENSAR) ($m)

67.8

Total firm value ($m)

380

Total basic shares (m)

114.2

Value per basic share ($)

3.33

Total options (m)

0.0

Total number of shares (m)

114.2

Diluted value per share ($)

3.33

Source: Edison Investment Research

Financials

Due to the upcoming dissolution of the company, we are no longer providing financial forecasts for PDL for future periods.

PDL reported gross cash of $125.7m at the end of Q320, though gross cash adjusted for the LENSAR spinout was $83.0m. The company has convertible notes that have a carrying value of $15.2m (the principal is $14.8m). PDL received notices during Q320 to convert $11.2m worth of the notes so it will have $3.6m in convertible debt principal left outstanding.

Exhibit 2: Financial summary

$000s

2018

2019

Year end 31 December

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

32,028

30,706

Cost of Sales

(13,555)

(17,276)

Gross Profit

18,473

13,430

General & Administrative

(40,041)

(45,345)

EBITDA

 

 

(24,327)

(39,265)

Operating Profit (before amort. and except.)

 

 

(24,327)

(39,265)

Intangible Amortisation

(1,294)

(1,290)

Other

0

0

Exceptionals

(8,569)

(10,768)

Operating Profit

(34,190)

(51,323)

Net Interest

(6,092)

(5,374)

Other

764

31,448

Profit Before Tax (norm)

 

 

(30,419)

(44,639)

Profit Before Tax (FRS 3)

 

 

(39,518)

(25,249)

Tax

6,753

1,021

Deferred tax

(0)

(0)

Profit After Tax (norm)

(23,666)

(43,618)

Profit After Tax (FRS 3)

(32,765)

(24,228)

Minority interest

0

280

Profit After Tax less Minority Interest (FRS 3)

(32,765)

(23,948)

Average Number of Shares Outstanding (m)

145.7

118.6

EPS - normalised ($)

 

 

(0.16)

(0.44)

EPS - FRS 3 ($)

 

 

(0.22)

(0.20)

Dividend per share (c)

0.00

0.00

Gross Margin (%)

57.7

43.7

EBITDA Margin (%)

-76.0

-127.9

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

-76.0

-127.9

BALANCE SHEET

Fixed Assets

 

 

448,291

403,311

Intangible Assets

13,700

13,186

Tangible Assets

3,705

2,560

Royalty rights

0

0

Other

430,886

387,565

Current Assets

 

 

517,217

313,895

Stocks

0

0

Debtors

4,774

6,559

Cash

365,680

168,982

Other

146,763

138,354

Current Liabilities

 

 

(52,469)

(45,693)

Creditors

(2,529)

(2,675)

Short term borrowings

0

0

Other

(49,940)

(43,018)

Long Term Liabilities

 

 

(183,260)

(78,235)

Long term borrowings

(124,644)

(27,250)

Other long term liabilities

(58,616)

(50,985)

Net Assets

 

 

729,779

593,278

Minority Interests

0

0

Shareholder equity

 

 

729,779

593,278

CASH FLOW

Operating Cash Flow

 

 

(13,425)

(32,444)

Net Interest

0

0

Tax

0

0

Capex

(1,117)

(2,463)

Acquisitions/disposals

366

0

Financing

0

0

Dividends

(48)

0

Other

7,995

(63,917)

Net Cash Flow

(6,229)

(98,824)

Opening net debt/(cash)

 

 

(283,785)

(241,036)

HP finance leases initiated

0

0

Exchange rate movements

0

0

Other

(36,520)

(480)

Closing net debt/(cash)

 

 

(241,036)

(141,732)

Source: Company accounts


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).

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

1185 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

1185 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).

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

1185 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

1185 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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